Merck sees deal opportunities as biotech funding gets tighter - RTRS
DAVOS, Switzerland, Jan 22 (Reuters) - U.S. drugmaker Merck & Co MRK.N is eager to do deals to bring in promising experimental medicines and believes a recent correction in biotechnology stocks should throw up new opportunities.
"Prices have come back somewhat. That is a positive thing," Chief Executive Kenneth Frazier told Reuters in Davos on Friday.
"In particular, some of the early-stage companies are struggling to get the next round of financing as people start to be a little less willing to pay for the promise of growth, so that gives us opportunities."
Frazier said he was looking for small and medium-sized "bolt-on" deals to bring in new drugs, although such transactions could still be sizeable.
"At our size, I would say a $10 billion or $20 billion deal would qualify as a bolt-on," he said in an interview on the sidelines of the World Economic Forum annual meeting.
With a strong balance sheet, Merck has plenty of room for manoeuvre when it comes to capital allocation, leading some analysts to speculate it might also step up share repurchases.
Frazier said finding value-creating acquisitions of external science ranked as his "number two" priority, coming behind funding for ongoing research but ahead of returning cash to shareholders.
Last year, Merck did a record number of deals, though most were on the small side. Its last major deal was an agreement to buy antibiotics specialist Cubist for more than $8 billion in December 2014.
Merck is not alone in chasing promising acquisitions. The wider healthcare sector saw its biggest deal-making streak ever in 2015, with global transactions totalling $673 billion, according to Thomson Reuters data.
The downturn in biotech stocks has been driven in part by fears among investors of a political backlash against high drug prices.
Frazier said much of the anger surrounding the issue had been sparked by "a few bad actors" exploiting market failures to extract excessive profits. But he acknowledged there were also wider concerns about the affordability of medicines.
"Right now we are in the middle of a presidential election season and the rhetoric level is pretty high," he said.
"But I do think people in Congress hear from their constituents at home about the challenges they have with paying for their drugs and so I think there will be pressure to do something."