A Pfizer ( PFE) proposal to acquire Gilead Sciences ( GILD) would have been audacious. Expensive? Surely, but merging the largest pharma company with the largest (and hottest) biotech company would have been game changing. Investors would have cheered such a deal.
Instead, Pfizer is sticking with the tired, mega-pharma merger playbook. It wants to acquire AstraZeneca ( AZN) in a deal that will likely cost more than $100 billion. AstraZeneca is rebuffing Pfizer's offer for now, but in the coming weeks, we're sure to hear much about how a union of Pfizer and AstraZeneca will yield operational synergies and cost savings, thereby delivering shareholder value.
What strikes me most about this sudden surge in healthcare M&A -- $153.6 billion so far in 2014 NOT counting the Pfizer-AstraZeneca proposal -- is the absence of biotech companies from the equation. No one is bidding for Gilead, Biogen Idec ( BIIB) or Celgene ( CELG).
Instead, Big Pharma seems content to trade assets amongst themselves. Novartis ( NVS) is buying GlaxoSmithKline's ( GSK) oncology businesses fort $16 billion while selling its vaccine business back to Glaxo for $7 billion. Then there was Valeant Pharmaceuticals ( VRX) offer to buy Allergan ( AGN) for $50 billion.
Biotech M&A is MIA.
Why? Valuation is a problem. Biotech stocks are expensive, even with the recent pullback. From inside the biotech bubble, Alnylam Pharma's ( ALNY) $6 billion market cap might have looked really cool and a validation of the emerging RNAi therapeutics field. From the outside, paying that much for an unproven technology is viewed as insane. And even with Alnylam's market value cut in half during the biotech stock sell off, there's probably still too much risk there.
I don't mean to pick on Alnylam only because there are certainly many more speculative, development-stage biotech stocks with too much risk for the lofty price tag.
Some die-hard biotech believers will say the sector doesn't need Big Pharma takeouts to be successful. The biotech sector can -- and is -- succeeding on its own. That's true. But let's be honest, some boffo biotech M&A would be nice. Right now, we got nothing.