Big pharmaceutical companies have begun 2019 with a bang.
Blockbuster deals like Bristol Myers Squibb's (BMY) $74 billion deal for Celgene (CELG) , Eli Lilly's (LLY) $8 billion deal for Loxo Oncology, and Takeda Pharmaceutical's (TAK) $62 billion buyout of Shire Plc have signaled the acquisition appetite in the space is strong.
A report from Chicago-based international law firm Baker McKenzie and Oxford Economics predicted that deals in the sector will increase to $331 billion in 2019, fueling speculation on what big deals remain on the horizon.
To understand the pipeline still ahead and the rationale for such massive mergers and acquisitions, TheStreet joined Takeda Pharmaceutical's CEO Christophe Weber on the New York Stock Exchange, shortly after his company rang the opening bell to celebrate the Japanese giant's U.S. listing.
"You need scale to conduct R&D," Weber explained. "R&D is very expensive if you want to deliver innovative medicine. You need financial and global scale to really finance your R&D."
The research and development angle is readily apparent in the trend in spending from a recently acquired company like Celgene, which increased its R&D spend six fold from 2008 to 2017. The competitive landscape only looks to heat up as big pharma stalwarts like Novartis (NVS) , Johnson & Johnson (JNJ) , Pfizer (PFE) , Merck (MRK) , and GlaxoSmithKline (GSK) continue to pump out hundreds of new drugs.
With the Shire deal, Takeda will look to tangle with these massive pipelines, a far cry from the company's humble beginnings as a traditional herbal medicine business begun in 1781.
To be sure, it might be a time before Takeda takes on more big deals to pump up its pipeline.
The company's debt pile has leapt from $8.8 billion at the close of the third quarter to a whopping $45.3 billion after the close of the Shire deal. The company even received a credit down grade, from A2 to Baa2, from Moody's.
"This transformative acquisition will cause Takeda's debt to increase almost six-fold, making the company one of the most leveraged pharmaceutical companies rated investment grade," Moody's analyst Yukiko Asanuma commented.
Still, Moody's rates the company's debt as stable as the Shire acquisition has catapulted the company into a top ten status globally, bolstered by the rare disease stable of drugs it will add from Shire.
For full commentary on the interview and more trends ahead in pharma, click here.