Big pharma has contributed to M&A activity in a big way in recent years. In fact, pharma M&A is responsible for 63% of big pharma sales growth between 1995 and 2014, according to an analysis by Datamonitor, which looked at the 22 largest M&A events since 1995.
So, will this M&A trend continue?
Pharma M&A As New Drug Development
The short answer is that this trend will most likely continue. Many pharmaceutical companies continue to see old patents expire and simply don’t have enough new drugs in the pipeline that are earning regulatory approval.
Between 2011 and mid-2014, 50% of the top 10 bestselling drugs will have lost patent protection in the US, according to Celerant Consulting’s Private Equity Centre of Excellence.
That’s forcing these companies to look for other ways to stay competitive and profitable—and many are choosing to purchase startups with promising research or smaller companies that are well established within a specific niche as a way of doing both.
The End of Blockbuster Drugs Leads to More Pharma M&A
Emerging markets offer some of the biggest opportunities for growth these days. These markets are, by nature, not aimed at the masses, instead targeting specific diseases and health issues.
This is essential if big pharma companies hope to compete with generic, low-cost drugs. However it contributes to the growth of pharma M&A in two ways:
First, it is undeniably quicker to acquire an established leader within a specific niche than to create a new department and work to become an established player.
Second, smaller niche drugs mean smaller profits. Without the huge blockbuster drugs that are aimed at common medical problems like high cholesterol, pharma companies are forced to utilize a bigger portfolio to maintain the same profits. That means establishing themselves not just in one or two specific niches, but working to become established in many.
Expect continued pharma M&A activity in the months ahead. All signs are leading to this trend extending through 2014.