Amgen, the world's largest biotech company, has said it is "looking hard" for deals to deploy its $27bn cash pile but warned it is struggling to find targets amid soaring valuations in the life sciences sector.
The note of caution comes as mergers and acquisitions activity in the healthcare sector recorded its strongest start to a year in more than a decade, with almost $32bn of global deals announced since the start of January.
However, buyers have been offering record premiums to clinch deals, with Celgene agreeing to pay $9bn for cell therapy group Juno — almost twice its undisturbed market value. Sanofi paid a 63 per cent premium for haemophilia specialist Bioverativ.
"We want to deploy any excess cash and our first priority is to do acquisitions and invest in the business," said David Meline, Amgen's chief financial officer, in an interview with the Financial Times.
But he added: "We see all of these deals announced, and we participate pretty actively in considering whether to bid, but we haven't been able to come up with a business case that would make a return for our shareholders.
"We will keep pushing ourselves and keep looking ourselves, because we have lots of financial flexibility."
He cautioned it would be difficult "as long as people are willing to pay levels above what we deem we can make a return on".
Mr Meline was talking before the recent market gyrations, which have sent valuations for biotech groups lower.
Amgen's stance runs counter to predictions of a deals frenzy from bankers and lawyers, who say they are working on more M&A leads than they have done in years.
The company's warnings on valuations carry additional weight because it is among the pharmaceutical companies with the most firepower to do big-ticket acquisitions.
In a recent note to investors, Geoffrey Porges, an analyst at Leerink, estimated that Amgen had as much as $70bn in dry powder that could be spent on M&A, including $27bn of available cash; the ability to easily raise $40bn on debt markets; and $3bn in retained free cash flow.
Mr Porges suggested that Amgen would need to do a deal at some point, given that its product sales declined last year, while the launch of its new cholesterol drug Repatha has fallen short of Wall Street's expectations.
"Amgen's growth outlook is not exciting, and the pressure on its legacy products is only going to increase." said Mr Porges.
He added: "We expect big things, which are most likely to be dilutive to margins and earnings near term, but to confer some growth and further diversification longer term."