Cantillon: Making sense of confusion in mid-range pharma M&A

The age of the blockbuster deal may have passed but recent mergers and acquisitions activity in the pharma sector could still have a noticeable impact in Ireland. And the nature of some of those deals could give cause for concern. In part this is because, at first glance, there are few synergies in some of the latest transactions and it is not yet clear whether companies are growing simply to avoid becoming targets themselves of whether there is a defined strategy at play.

Actavis's $8,5 billion deal earlier this month to acquire Irish-headquartered Warner Chilcott is a case in point.

While it certainly helps generics group Actavis – itself the result of a $4.5 billion merger a year ago – to diversify, there is a suggestion that it was as much a defensive play to fend off attention from Canadian group Valeant, Mylan and others which had been sizing up Actavis.

The Irish domicile for the new group, reducing its effective corporation tax rate to around 17 per cent from 28 per cent will no doubt account for a significant part of the $400 million in annual synergies expected from the deal.

A week after losing out on Actavis, Valeant, nothing daunted, turned around and announced on Tuesday that it is acquiring lenses and eyecare group Bausch & Lomb from private equity owner Warburg Pincus in a deal worth $8.5 billion in cash.

Valeant has undertaken a reported 60 deals since 2008 and chief executive Michael Pearson is on record with his intention to make the company a player in the Big Pharma league. The Bausch & Lomb deal goes some way to doing that. It adds eyecare to Valeant's portfolio of products and also improves its exposure to the fast growing emerging markets, especially Asia.

However, it also adds to the debt pile, which may concern some of the 1,200 employees of Bausch & Lomb in Waterford. Valeant already owed $10 billion at the end of last year and has now raised a further $7.2 billion for this latest deal.

And Pearson himself said that, though talks with Bausch & Lomb have been going on and off for a few years, they "intensified in recent weeks" – ie since the pursuit of very different target Actavis failed. For separate reasons, the takeover by AstraZeneca of Omthera Pharmaceuticals in a deal worth up to $443 million may not bode well for an Irish business.