The pharmaceutical industry started the week with a bang, with two major players announcing key acquisitions on Monday.

First out of the gate was Bristol-Myers Squibb (NYSE: BMY), with a plan to acquire privately held cancer-treatment maker Flexus Biosciences for $800 million upfront, plus another $450 million if certain milestones are met. The companies expect to close the deal before the end of the quarter.

Flexus develops immunotherapies, which use a patient’s own immune system to fight cancer. The company’s lead treatment, F001287, is slated for an investigational new drug filing with the FDA—or one step prior to entering Phase 1 clinical testing—in the second half of 2015.

But Bristol wasn’t done: in a separate press release, it said it had struck an agreement with another immunotherapy maker, Rigel Pharmaceuticals (NasdaqGS: RIGL), to develop treatments based on Rigel’s existing portfolio.

Bristol will pay Rigel just $30 million upfront, but that could rise as high as $339 million if any of the resulting drugs gain FDA approval, plus Rigel can receive royalties on sales of any new drugs from the collaboration.

Close on Bristol’s heels was Canadian drug maker Valeant Pharmaceuticals (NYSE: VRX), which announced its biggest acquisition yet, a $14.5-billion deal (including debt) for Salix Pharmaceuticals. The focus here is on gastrointestinal treatments, of which Salix has 22 in its portfolio, on top of those in its development pipeline.

At the heart of the deal is Salix’s Xifaxan treatment, for irritable bowel syndrome, on which the FDA is set to rule in May. If Xifaxan gets the green light, Valeant feels it will generate $900 million of sales in 2015.

Valeant has made its name by snapping up smaller firms (including 25 in 2014 alone), then slashing their costs, including for R&D. The Salix deal comes after the company was thwarted in its long-running crusade to snap up Botox maker Allergan (NYSE: AGN) late last year.

M&A Mania Likely to Continue

To say the pharmaceutical space has consolidated in recent years would be a considerable understatement. According to Bloomberg, back in 1988 there were 42 members of the Pharmaceutical Research and Manufacturers of America, the industry lobby group, but as of May 2014, just 11 original members were left.

Last year saw a continued increase in deal making. According to a just-released report from PwC, deal value rose 4.1% in the sector in 2014 from 2013, while deal volume jumped 37.5%. The consultancy also said there were 17 deals announced in Q4, valued at a total of $105 billion, suggesting the pace will remain brisk this year.

Many drug makers have focused their M&A on enhancing their core strengths, rather than diversifying. That’s reflected in Bristol-Myers’ recent moves; the company has invested heavily in immunotherapies since it entered the market in 2009, and the FDA approved its Yervoy skin-cancer treatment in 2011.

At the same time, regulators in the US and Europe continue to approve higher numbers of new drugs, putting more cash in acquirers’ pockets.

“The increase in the number of approvals will help the pharmaceutical and life-sciences industry to continue down the path toward more deals, as the newly approved products will generate additional funds that companies can use to acquire assets,” reads PwC’s report.

While integrating acquired firms can cause headaches for a company, including disrupting vital R&D, there’s some evidence that investors benefit from these deals. Last year, for example, consulting firm McKinsey & Co. examined 17 pharma “megamergers” that occurred between 1995 and 2011.

The takeaway?

“Median excess returns for megamergers in our sample were positive, showing returns 5% above the industry index two years after a deal’s announcement,” the researchers wrote. “This is in contrast to large deals in other industries, which have had marginal returns relative to industry indexes or, in the case of deals in the technology sector, sharply negative returns.”

Novartis Builds From Within and Without

The pharma outfits we cover in our Personal Finance advisory are no strangers to big acquisitions—but they’re no slouches when it comes to developing blockbuster drugs through R&D, either.

Take Switzerland-based Novartis AG (NYSE: NVS), for example. The company poured $9.9 billion into R&D in 2014, second only to Roche Holding Ltd. (OTC: RHHBY) among the big pharmaceutical firms.

But the company is also in the late stages of wrapping up a deal that will see it swap more than $20 billion worth of assets with UK-based GlaxoSmithKline (NYSE: GSK).

Here’s how the agreement, slated to close before the middle of the year, works: 

• Novartis will acquire Glaxo’s oncology business for $14.5 billion, plus an additional $1.5 billion in potential milestone payments.
  
  
• Glaxo will get Novartis’s vaccine business for $7.1 billion (not including flu vaccines, which will go to Australia’s CSL Ltd. for $275 million).
  
  
• The companies will also merge their consumer health care operations into a new joint venture. This firm, in which Novartis will hold a 36.5% stake, will be the world’s second-largest consumer health care company, behind only Johnson & Johnson (NYSE: JNJ).

The company received some good news on the deal on Monday, after the Federal Trade Commission signed off on its purchase of Glaxo’s cancer drugs, with some conditions. Canadian regulators also approved the deal the same day.

Meantime, Novartis is looking forward to a number of drug launches this year, including recently approved Cosentyx, for psoriasis, and LCZ696 (heart failure), which the FDA could decide on in August. CEO Joe Jimenez has said Cosentyx could bring in $1 billion of revenue annually, while the heart medication could generate $2 billion to $5 billion.

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