Pharmaceutical market growth rates have halved inside the past five years, and will remain modest into the next decade. At the same time, new drug approval rates have slowed. With costs continuing to rise, the industry’s margins are already being squeezed, but will come under growing pressure as payers adopt more stringent pharmaceutical cost-containment policies and as patents on a slew of blockbusting brands expire.
Multinationals are scrambling to adjust to this new, more austere market environment. All of the sector’s leading players are pursuing major cost-cutting programs, but these alone will not be sufficient to paper over cracks in the traditional big pharma model. More radical restructuring - often through merger or acquisition deals - will be required to solve the industry’s underlying problems.
Pfizer and Merck have each announced mega-mergers designed to breathe new life into their respective businesses. Few of the global-scale deals concluded since the mid-1990s have delivered major long-term benefits, however, and a growing number of big pharma CEOs have begun to pursue more nuanced M&A strategies. Key trends include the pursuit of biotech/ biopharma targets to bolster multinational pipelines; expansion into developing countries; the establishment of a presence in the generics sector; and the purchase of assets in lower-risk segments of the healthcare market.
The world’s ten biggest pharmaceutical companies have committed almost $230bn to M&A deals since the beginning of 2007. The size of their assets and the cash-generating capabilities of their existing businesses have rendered them largely immune from the effects of the global economic downturn, during which big pharma M&A spending has actually accelerated. Key M&A announcements will continue to be made on a regular basis into 2010 and beyond.
Key issues addressed in this report
Pharmaceutical industry pressure points: Pharmaceutical industry revenues and margins will come under growing pressure as payers impose more stringent cost-containment policies, and as patent expiries erode sales generated by existing major brands.
M&A drivers: Multinational M&A activity will be driven by efforts to bolster pipelines, expand businesses beyond traditional core geographic boundaries, cash in on the generics boom and broaden the scope of existing activities.
M&A funding capabilities: Big pharma’s huge financial assets and the cash-generating capabilities of multinational prescription drug businesses will allow companies to continue accessing funds to support M&A investment at substantial levels.
Mega-mergers: While history shows that few mega-mergers have delivered real long-term benefits for buyers or their shareholders, the ‘quick fix’ that such transactions offer is clearly still difficult for some to resist. The deals unveiled by Pfizer and Merck in 2009 will not be the last global-scale transactions witnessed in the sector, but a more strategic approach to M&A activity will begin to prevail.
The rush into biotech: Multinationals will continue to raise their stakes in the biotech industry as they attempt to shore up in-house pipelines. Competition for the most attractive biotech targets is increasingly fierce, however, and buyers will be forced to pay substantial premiums in order to secure quality biotech assets.
Cashing in on the generics boom: More multinationals will invest in the acquisition of generic businesses. Targets will include global commodity-type manufacturers, emerging biosimilar specialists and national or regional producers of the branded generics that dominate drug sales in many developing markets.
Key findings of this report
The pharmaceutical industry’s ten biggest players face the expiry of patents on brands that generate annual revenues of more than $130bn within the next five years. This ‘patent cliff’ is driving the acquisition of biotech assets designed to strengthen big pharma pipelines.
Biotech/biopharma companies were the subject of nearly half the M&A transactions completed or announced by leading pharmaceutical companies between January 2007 and July 2009, and accounted for four of the ten biggest M&A deals witnessed in that period.
The world’s ten biggest pharmaceutical companies generated prescription drug sales totaling $308bn in 2008. Their operations generated aggregate net cash of more than $106bn and pre-tax profits of $81bn. At the end of 2008 they were sitting on collective net assets worth $354bn.
The ten leading companies have completed or reached definitive agreements on 64 M&A deals since January 2007. Together, they have committed almost $230bn to healthcare M&A transactions in the past two-and-a-half years.
Biotech companies aside, consumer healthcare and generic businesses are among the most popular acquisition targets, reflecting a desire on the part of big pharma to reduce levels of exposure to conditions in the global market for prescription drugs.
Two of the world’s five biggest generics businesses are active candidates for disposal. Sandoz and Teva aside, all of the world’s other leading generic companies are potential acquisition targets.
This report provides
Analysis of key pressure points affecting the global pharmaceutical industry and of the sector’s efforts to adjust to these unprecedented challenges.
Comparative analysis of leading pharmaceutical finances, development pipelines and exposure to major patent expiries.
Comprehensive tracking of individual company M&A activity since January 2007.
Insights into individual company M&A strategies and the likely nature of future M&A activity.
Critical appraisal of previous pharmaceutical mega-mergers, and of the pending Pfizer/Wyeth and Merck/Schering-Plough transactions.
Analysis of conditions in the global biotech and generics markets, factors driving consolidation and identification fo key M&A targets in each of these two sectors.
Use this report to:
Quantify individual pharmaceutical company exposure to major patent expiries in the next five years.
Compare the strengths and weaknesses of big pharma pipelines and identify the gaps that biotech acquisitions will be used to plug.
Track recent M&A activity by the world’s ten biggest pharmaceutical companies in terms of both deal values and strategic intent.
Gain valuable insights into the strategic approaches to M&A activity being pursued by individual big pharma CEOs.
Understand why most previous pharmaceutical mega-mergers failed to deliver long-term benefits, and how Pfizer and Merck hope to avoid repeating the industry’s past mistakes.
Identify prime biotech/biopharma acquisition targets and the global, regional or national generic businesses most likely to attract acquisition bids.
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