It has been a historic year for biotech mergers and it might not be over yet

It’s already been a huge year for biotech mergers, we just saw the biggest announcement yet, and the buying might not be over.

On Tuesday, Teva Pharmaceuticals announced an offer to buy Mylan for $US82 per share in cash and stock in a deal worth about $US40 billion, according to a statement.

This is the largest takeover attempt in the industry this year, topping Abbvie’s buyout of Pharmacyclics for $US21 billion last month.

Biotech and pharma M&A activity was about 94% higher than it was last year through early March, according to Reuters.

In a report on Tuesday, Bloomberg noted that generic drugmakers have announced or completed $US100 billion of mergers this year, worth five times more than any year since 2005.

On one day late last month, we saw four separate deals announced, including 3 deals over $US1 billion. One of those deals included Teva’s acquisition of Auspex Pharmaceuticals for $US3.2 billion.

Another wrinkle in Tuesday’s announcement is that this takeover by Teva attempt comes as part of a three-way battle going on.

Mylan has offered to buy drugmaker Perrigo as part of a $US29 billion deal. In a letter to Perrigo’s chairman, Mylan’s chairman Robert Coury argued that the deal made both business and strategic sense.

On Tuesday, Teva emphasised that its offer is more attractive for Mylan than the company’s proposed merger with Perrigo, and the company said in a statement that its offer for Mylan is “contingent on Mylan not completing its proposed acquisition of Perrigo or any alternative transactions.”

Of course, all might not be lost for Perrigo shareholders (though shares were off by about 2% on Tuesday).

Here’s what JPMorgan analysts wrote in a recent note to clients:

For Perrigo, we cannot rule out interest beyond Mylan given the company’s growing, durable asset base. Perrigo is targeting 5-10% organic top-line growth and 10-20% EPS growth over a 3-year period, which is one of the most attractive growth rates across our coverage universe and we see this as providing support for shares in the event the company’s remains independent. However, Perrigo’s OTC business is a durable, cash-pay business and we see room for Mylan to raise its offer for the company. Further, we would not be surprised to see other interested parties emerge for the company.

All of this consolidation in the industry, however, screams “bubble” to some, with Credit Suisse writing in a recent note that the industry is in a “new era” where actual earnings and profits accompany the “hopes and dreams” that biotech innovations had been associated with.

The Health Care sector of the S&P 500, where the biggest biotech and pharmaceutical companies are housed, is expected to announce the best earnings and revenue growth in the first quarter; 11.3% and 9.4%, according to FactSet.

Meanwhile, iShares Nasdaq Biotechnology index is up 19% this year, and 59% in the last 12 months.

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