By: Charchil Vejani
The pharmaceutical industry seems besieged on all sides, with declining research and development (R&D) productivity, expiring patents on blockbuster products, and relentless downward pricing pressure forcing companies to look closely at the bottom line. One effect of this onslaught has been an upsurge in the levels of merger and acquisition (M&A) activities as players within the industry consolidate to cut costs, expand research pipelines, and lengthen geographic reach. Many pharmaceutical industry mergers and acquisitions have occurred in the past year. Deals in the pharmaceutical industry has increased in 2015 and it is worth $300 million. Before 2015, Western European and the Canadian market were attractive for such deals, but in 2015, this trend began to move toward the U.S. market and emerging markets such as India and China.
Why such a rush to make deals? Experts attribute it to a combination of investor pressure and a narrowing window of opportunity. What could be the cause of such deals? Is it strategic, financially-motivated, government influenced, or personal gains? The majority of such deals have been money oriented; for tax benefits, lower interest rates, accretion or revenue diversification, and increased shareholder pressure. Plus, it is easier to acquire than to develop new technology, isn’t it? Many manufacturers or contract manufacturing organizations from India and China have realized that in order to grow, it is important to be able to stabilize on U.S. soil. So many deals in the past year have been seen for geographical expansion, to increase manufacturing capacity or scale of production, specialty drug development, diversify portfolio, etc. And some of the deals are just for better management compensation. But growth is the main driver for M&A deals: growth in revenue is the main driver for such deals, not just increasing distribution scale or cost cutting, but the stock price. Putting more resources into developing the next blockbuster drug has slowed down the revenue growth. Because of the likelihood that pursuing an acquisition will boost a company’s revenue growth and thus its share price, investors have increasingly been pressuring pharmaceutical firms to strike deals.
What could be the implications of such Mergers? Will such deals continue in 2016 and beyond? Can we see decline in near future? It is not easy to find valuable targets. Governments are getting more and more involved, which increases legal hurdles for tax inversions. In coming years, such deals will show some decline, but are there any opportunities due to such deals? Rapid growth has been seen in specialty drug development such as investment in the areas of cancer, CNS disorders, and hepatitis C research. Moreover, pharmacy benefits are higher for specialties spent, and as a result, private, independent specialty pharmacies are growing quickly. More than double growth in development of specialty drug wouldn’t be a surprise in coming years in the development of specialty products. What would be the rate of scientific advances and innovation in specialty pharmacy? Irrespective of the rate it will surely add to the arsenal of beneficial cures and treatments.
Charchil Vejani, Ph.D., is working as Sr. Formulation Scientist at PuraCap Pharmaceuticals, LLC, where he resumes responsibility of development of 505(b)(2) and ANDA in oral solid dosage forms. Vejani is one of the few people who utilized a novel technology named as Pulsatile Microdialysis and has published his work in international journal.