Volume Rises but Value Falls for M&A Deals in the Global Pharmaceutical and Biotechnology Industry

The challenges posed by expiring patents, the global economic slowdown, and price premium pressures are forcing the pharmaceutical and biotech industry to restructure and streamline strategies to boost profitability. Mergers and acquisitions (M&As) have become the preferred approach to counter low margins as they give access to new markets while creating more revenue pools and, to some extent, compensating for depletion in the research and development pipeline.

New analysis from Frost & Sullivan’s 'Merger and Acquisition (M&A) Trends in the Global Pharmaceutical and Biotechnology Industry' reveals that oncology, one of the largest and fastest-growing therapeutic domains in terms of drug development, is expected to remain the hot pick for buyers looking to strengthen their portfolio. North America will continue to be the most active region in terms of both number and value of deals.

“Big Pharma’s contribution to M&A deal value has been decreasing, and the trend towards more low-value deals is likely to persist,” noted Frost & Sullivan Financial Analyst Dr E Saneesh. “However, with a good number of drugs expected to lose patent in the near future, and balance sheets showing more than adequate cash, Big Pharma will set in motion mega deal activities to replenish its portfolio.”

Major drug companies are also exploring M&A opportunities in parallel sectors such as nutritional supplements, over-the-counter products, and cosmetics in a further bid to expand their product range and make up for shrinking profits.

Other sectors in healthcare, such as diagnostics and medical technologies, will be particularly attractive, as they have higher scope for innovation and fewer regulatory hurdles. Acquiring companies in these segments could help drug manufacturers diversify risks in the primary pharmaceutical sector.

“The presence of financial investors in deal-making also increased in the first three quarters of 2013, indicating improving investor confidence in the industry,” explained Saneesh. “This can lead to joint deals with pharmaceutical and biotech companies that too are on the verge of raising funds for deal-making.”