Global pharma: Shape up or ship out…
May 15, 2014
With over $189bn worth of transaction activity making headlines in little over two weeks, the shifting dynamics of the pharmaceutical industry are becoming visibly symptomatic. The potential Pfizer/AstraZeneca and Valeant/Allergan mega mergers are stirring up emotions and hitting headlines daily, and yet, look beyond the bold font and you can see the roots of the new face of pharmaceutical (pharma) – focused, flexible and fat-free!
While the opportunity for operational restructuring certainly underlies a number of these intended transactions, the strategic value drivers point to some interesting trends.
The GlaxoSmithKline (GSK)/Novartis transaction allowed both companies to focus on their therapeutic area strengths - vaccines and oncology respectively, while co-operating to create a joint venture which would become the largest player in the consumer healthcare sector.
Bayer’s acquisition of Merck’s consumer healthcare business also illustrates its desire to focus on its key strength and scale up its business to better compete with GSK’s new joint venture as well as with Johnson & Johnson. As for some of the potential transactions, AstraZeneca’s Research and Development (R&D) pipeline is of significant interest to Pfizer and Allergan’s niche products in dermatology and ophthalmology are of great interest to Valeant as it seeks to expand its focus on speciality medicines.
Strategy behind the approach
The industry has seen the years of the mega-mergers (1990’s) and the large biotech deals (2000’s) change the scale and nature of large pharma and their R&D operations. Today, pharma companies seem to be focusing on their comparative advantages, and are seeking to:
- refocus activities around their core therapeutic area strengths;
- focus on more niche and defensible segments of the market;
- position themselves as leading players in their chosen areas and thus divesting sub-scale and non-core activities; and
- continue to enhance their R&D pipeline through strategic acquisitions.
So what does the future look like?
- As pharma companies continue their quest to become more focused and niche, M&A will continue to remain strong with asset swaps and more sophisticated joint ventures increasingly becoming a tool to achieve this. Companies are likely to have to pay premium multiples for target businesses or divisions that will deliver the desired strategic direction as these are likely to be highly sought after
- There are also likely to be asset divestments following any future mega mergers as companies strive to shape and define their focus areas
- Technological advances both in terms of R&D and related adjacencies will continue to transform the sector and will be a key driver of M&A and collaborations as companies continue to bolster their R&D pipelines and drive efficiencies
- Healthcare reform and reimbursement pressures across the globe will continue to require innovation to demonstrate value for money
- Emerging markets will remain a focus for growth, especially in the short to medium term
- Personalised medicine is likely to drive research efforts, see increased uptake of targeted therapeutics and change the traditional model of drug trials
- Risk-sharing will underpin increased collaboration within the industry - between competitors, payers and universities and will be seen as one solution to the reducing incentives being seen by the industry to engage in high-risk research
- Integrity of supply chains will become more of a focus as pharma companies become subject to increasingly complex regulatory pressures driven by the demands of a more conscious and vocal patient population
- Tax incentives may or may not continue to be a key driver of the geography of acquisitions
As companies increasingly pool resources, share information and become more focused we should start to see better medicines for consumers due to less duplication and increased productivity - whether this will be the case remains to be seen.
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