Q: How would you characterize the current landscape of M&A activity in the pharmaceutical/biopharmaceutical industry?

Q: How would you characterize the current landscape of M&A activity in the pharmaceutical/biopharmaceutical industry?

March 19, 2020PAP-Q1-20-NI-008


Anne Whitaker,
Chief Executive Officer, Aerami Therapeutics

A: There is always going to be M&A going on in the biopharmaceutical space, given the ecosystem that exists between biotech and large pharma. It’s just part of doing business in our industry. Large pharma has to deploy the capital on their balance sheets to bring value for shareholders. Start-ups and smaller companies are driving drug innovation and are good targets for large pharma to acquire, diversify their product portfolio, and expand into new disease areas, as well as markets. I believe there could be an uptick in both bolt-on and acquisitions, given large pharma’s aging pipeline, patent expirations and shift in strategic focus to sustain long-term growth, and revenue to stakeholders.

M&As facilitate the advancement of drugs for which start-ups and smaller companies don’t have the capital or infrastructure to carry through latest stage of development and commercialization. The prices that large pharma is willing to pay aren’t surprising given the strategic nature of the acquisitions and the scarcity of targets with late stage assets. M&A isn’t necessarily the best way to buy preclinical assets, except when you are buying a platform technology, but it is a good way to buy late-stage drugs that fit into your current commercial infrastructure. How M&A affects overall drug pricing strongly depends on the nature of the acquisition. If a particular merger or acquisition results in reduced competition, this might impact consumer prices negatively. It is essential that regulations and policies are updated in parallel to a rapidly changing industry to warrant transparency and ensure that drug prices represent pharma investment while ensuring broader reach of medicines to patients in need.

Sarah Holland, D.Phil.,
Head of Licensing, Lonza Pharma & Biotech

A: We’re excited about the pace of change both in terms of the number of new modalities and in the regulators’ approach, encouraging more development of therapies that answer unmet medical needs. And we’re starting to see the result of this in better patient outcomes.

The recent M&A environment reflects this increased pace and development of new therapeutics. With their main focus on ensuring delivery to patients, pharma companies have been stepping in to acquire innovation in new modalities. The price tags of these acquisitions have been an extensive subject for debate, but it’s worth bearing in mind that these are not just acquisitions of an asset or pipeline — larger companies are also acquiring specific expertise they may not have in house already, and this also has considerable value.

Over the next decade, we could also see increased obsolescence before patent expiry, as new drugs outpace the current standards of care. This inevitably adds an additional risk factor for companies developing therapies. The funding and regulatory environment is encouraging many biotech companies to stay independent longer. But whether their strategy is to launch on their own or look to be acquired, it’s vital that they can get their processes onto recognized manufacturing platforms. This can facilitate due diligence in the case of acquisition, but more importantly it helps de-risk early-phase launches — its not uncommon for drugs targeting rare or orphan diseases to be approved in phase I, since they are often adaptive or single-arm trials with clear endpoints.

Andrew Badrot,
Chief Executive Officer, C2 PHARMA

A: Due to its nature, the pharmaceutical industry will always see M&A activity. That is not likely to change anytime soon. However, the drivers behind it do change over time, based on the trends in the market. Right now, as the regulatory landscape continues to become more stringent and standardized, and cost controls are being enhanced, the recent trends include:

  • Tighter review and controls of drug pricing — particularly in the U.S. marketplace — driving consolidation of generic players. There is a continuing collapse of outdated business models based on price hikes of old/existing generic drugs, meaning that generics companies must continue to find ways to seek scale and find cost efficiencies to pass along to customers.

  • In today’s market, pharmaceutical R&D is no longer as insular as it once was. There is a great deal of reliance on external innovation driven by venture capital companies that are looking to invest in innovation to close product gaps. This model has proven to be more efficient than pharma companies relying solely on internal R&D.

In the CMO space, we have also seen an increasing trend of M&A activity, which has been reflected in many big ticket purchases, particularly from 2017 to today. The greatest drivers in this space are:

  • Increased activity from private equity (and to a lesser extent venture capital) investors seeking to consolidate a fragmented marketplace (as drug makers show growing interest in streamlining their supply chain with fewer vendors/points of contact).

  • Within larger CMOs, cheap money and abundance of liquidity that needs to be used, coupled with the convenience of purchasing ready-to-use capacity and capabilities, rather than investing in building these from the ground up.

As much as I feel that valuations in pharma are still manageable, valuations in the CMO space are heading into unhealthy territories. The backlash is yet to come, but as valuations soar to around 12–15 times EBITA for CMOs, the bubble will have to burst at some point.

Barbara Morgan, Ph.D.,
Global Business Director, Pharmaceutical Solutions and General Manager, CDMO Division, Lubrizol Life Science Health

A: The outsourcing industry is growing at an astonishing rate. There are still many M&A deals to be made as pharma companies offload legacy plants associated with traditional small molecule manufacturing, giving rise to consolidation and expansion.

However, in newer segments of the market, such as biologics, companies have to build facilities from scratch rather than simply buy them, as these newer therapeutic areas and their infrastructures are just beginning to establish themselves. Despite this new trend, there is still a lot of consolidation and buying happening and that will continue throughout the decade.

There is also more private equity money flowing into the CDMO market, meaning there are fewer independent CDMOs than there were in the past. This may be a key factor that shapes the industry over the next decade.

Alongside M&A deals, there are also more partnerships forming, as the pipeline isn't being built in the traditional sense, and new business models are required. Companies are much more open to sharing their innovative pieces of work, and there is more transparency between big pharma and smaller start-ups.

Dago Caceres,
Global Strategic Marketing Leader, Pharma Solutions at DuPont

A: M&A activity within the pharmaceutical industry remained high in 2019, following the trend we’ve seen across the last five years. Considering the innovation trends and the significant regulatory/policy changes in all corners of the world, we would expect this trend to continue — or even accelerate — in the coming years. One of the most interesting aspects is the large-value deals in the recent past (i.e., Mylan–Pfizer), which indicates a redefined strategy to leverage the strengths of other companies in order to remain competitive. The average premiums at which companies were acquired is high, but the likelihood of recovering it via pricing of the end drugs is uncertain.

Read Part 2: 2020's Technology
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