Company Analysis - Mergers & Acquisitions
The pharmaceutical industry in the coming year
The pharmaceutical industry has always been characterised by mergers and acquisitions (M&A), with deals often running into tens of billions of dollars. This was thought to have reached a peak in 2000, with mergers establishing such 'mega-companies' as GlaxoSmithKline (GSK). However, the M&A market did not slow down even in the aftermath of these megadeals, with further record years in 2006-2007.
In 2007 there was a total volume of US$79.5 billion in M&A deals. Experts query whether this trend can continue indefinitely. The costs, upheavals and sometimes less-than successful outcomes have had repercussions, and the continued readiness of big companies to swallow each other whole is in doubt. Almost inevitably, 2008 saw a massive decrease in the volume of M&A deals, with the first three quarters of 2008 only reaching a value of US$28.9 billion. Does this mean that the appetite for M&A has finally been sated?
As expected, industry watchers are now focusing on the biotechnology sector. Deals done by biotech companies are slowly on the rise, indicating they are now more than just the targets of acquisitions by big pharma. In 2007 the value of deals by biotech companies came to US$3.97 billion, increasing to US$4.2billion in the first three quarters of 2008 alone. A few large biotech companies are now becoming major players, achieving independence from the financing that big pharma historically provided. But what of the smaller biotech firms? Towards the end of 2008, there was only US$8.2 billion financing on the table from big pharma, reaching an all-time low for the whole decade. Compare this to the US$17.9 billion paid out in 2007 and it is evident that the well of big pharma money is drying up. This is reflected in figures showing that biotech purchases are by far the biggest growing sector of M&A activity. Despite a lower volume of deals done in 2008, by mid-2008 the deal value for this sector was up 87%. It seems pharma companies are still well aware of the value in biotech pipelines. Nowadays however, they are moving aggressively into this sector by buying whole companies rather than settling for licensing deals for one or two individual drugs.
