Mergers and Acquisitions in the Pharma-Biotech Panorama

The past ten years have proven challenging for the pharma industry, witnessing a large number of mergers and acquisitions within it. Recently, this tendency has been reinforced with what may be called super mergers and acquisitions. It is obvious that the financial reality, marked by an economic deceleration and credit compression, is behind this, but it is not the only important factor. Big pharma has been dealing for a long time with issues regarding patent expiry of blockbuster molecules, regulatory obstacles, generics competition, under utilization of resources, and declining product pipeline due to low R&D productivity, among others. All these factors, along with the current economic reality, have caused major lowering of stock market values, creating the perfect setting for super mergers and acquisitions.

Most eyes are set on big companies with strong drug development channels and low chances of patent expirations, but the real value behind these mergers is still unknown, as, in the past, they have not shown important additional value in terms of R&D productivity. In fact, these mergers will produce more mergers and acquisitions activity, because some of the secondary units of these companies may need to be parted with. A big plus could be the increase in bargaining capability with payors and government, making this a strategic move leading to the strengthening of the big pharma family, but not benefitting the patients.

An additional aspect that is very clear is the move of big pharma to biotech. The blockbuster model is not expected to disappear, as it has been responsible for turning the pharma industry into a high profit margin one. However, it may shift from a small molecule-based blockbuster model to a biologics based one, since many have seen the huge opportunity behind biologics, and super mergers and acquisitions have been developing activities related to the pharma-biotech field. Also, manufacturing and commercialization of biosimilars is more complicated than it is for small molecule generic drugs, minimizing the generic threat for biologics.

One thing is clear, any pharmaceutical consultant can confidently state that big pharma is becoming big biopharma. Big pharma is consolidating space by acquiring past partnerships and alliances with biotech companies. It can be seen that many of the acquired biotech companies had partnered before with their acquirer, and current alliances make acquisitions easier because of cultural compatibility and knowledge of the company.

Licensing deals attract acquirers and provide a revenue source to maintain business activity. Novel technology, biologics product portfolio and scientific talent are attractive factors drawing super mergers and acquisitions towards the pharma-biotech sphere. These advantages, added to the fact that many biotech companies’ valuation has declined in about 30%, present a tempting possibility of acquisition rather than to try to negotiate complex licensing deals.

Besides the super mergers and acquisitions taking place within the pharma biotech sphere, many biogenerics and biosimilars are expected to enter the market in the next years, and big biotech companies need to add new products to their portfolios and expand their current lines to stay competitive. These could also become preferred targets for big pharma.

The acquisition of so many biotech companies makes it difficult for small and medium ones to make it through, as investors will opt for the acquisition as a safe way out. However, these seldom succeed due to management inefficiency, which must be expert in order to do well at the right time and in the right way.

It is important to realize that these small biotech companies have great capacity to attract the best scientific talent because of their flexible and entrepreneurial culture, so, any attempt to force onto them the big pharma work culture will surely create a clash. These should be kept as independent business units and research entities, while big pharma centers on commercialization.

The pharma industry should focus on acquiring small and medium biotech companies instead of uniting into super mergers and acquisitions, saving both the struggling biotech industry and pharma.

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