Innovation and efficiency are both key to successful drug development and commercialization. In addition to internal investment in R&D, mergers and acquisitions and licensing deals are fundamental strategies for gaining access to novel therapeutic compounds and platform technologies that can expand pipeline portfolios and broaden market reach. These factors apply to both pharma companies and contract service providers.

Good Fundamentals

Pharmaceuticals have been, and continue to be, one of the most effective ways of managing disease and ailments which impact human health. A number of factors are driving current deal activity (including M&A, asset divestment, licensing and fund raising) in the pharmaceutical industry. First of all, the fundamentals are strong. The global population is growing, while the economic status of many people in emerging regions is consistently improving. As a result, more people can afford to pay for healthcare and are seeking access to advanced treatments.

Indeed, the pharmaceutical industry is massive. Healthcare spending represents approximately 10% of global GDP, which was estimated by the World Bank to be $75.848 trillion in 20161. Drugs account for about 10-11% of overall healthcare costs, or approximately 0.5-1% of global GDP — that equates to $379-758 billion.1 The healthcare industry is also attractive because pharmaceutical companies — and their contract service providers — operate outside normal economic cycles. Medical care is a necessity, independent of, and unphased by, the economic climate.

Pharma Focused on Biotech Acquisitions

Deals in the pharmaceutical industry are an important mechanism of acquiring innovation, business and efficiency, as such transactions are an essential activity for the majority of healthcare companies and their very senior personnel. In many cases, senior management may only be involved in a very few transactions throughout their career, so the advice and support of transaction specialists is essential to ensure a successful transaction.

Pharmaceutical M&A activity has remained strong over the past several years. In many cases, this activity is the result of companies seeking to broaden their pipeline portfolios. While many candidates continue to be developed in-house, pharmaceutical companies are turning to acquisitions of, and licensing deals with, biotech firms to gain access to next-generation technologies as well as innovative treatments.

While many candidates continue to be developed
in-house, pharmaceutical companies are turning
to acquisitions of, and licensing deals with, biotech firms to gain access to next-generation
technologies as well as innovative treatments.

CMOs/CDMOs Acquiring Pharma Assets

Like the pharmaceutical industry, the contract services sector is growing at a healthy pace (upper single-digit growth across this industry). The same drivers that are leading pharmaceutical companies to seek new technologies from biotech companies have led to greater outsourcing activity. Current and future medicines require specialized technologies and manufacturing capabilities. Contract development and manufacturing organizations can offer a useful outsourced manufacturing option for the pharmaceutical company, which will have cost benefits. CDMOs can attract a broad base of customers by additionally offering advanced technologies and even developing their own proprietary modifications and offerings.

A second driver for growth is the concern of supply chain security. The significant level of outsourcing to firms in Asia (specifically China and India) that began approximately 10–15 years ago is trending in reverse. Some of the historical cost efficiencies have disappeared as the cost of manufacturing in Asia has increased, moving closer to Western levels. As a result, the greatest M&A activity in the CMO/CDMO space is taking place in the west, particularly by CDMOs based in the US and Europe looking for additional capacity and capabilities, especially in North America.

Meet Results Healthcare

Founded in 1991, Results Healthcare is a transaction advisory company. We provide our clients with support on both the sell and buy sides of transactions, including classical mergers and acquisitions, asset divestments and licensing deals. We also provide fundraising assistance. Our parent company Results International specializes in three important industry sectors — Marketing (Marcoms), Technology (Software) and Healthcare — with the Results Healthcare business accounting for approximately 50% of overall company revenues.

With locations in New York and London, Results Healthcare supports clients largely in the U.S. and Europe, but also frequently works with companies in Asia and Latin America. Our people have diverse backgrounds in healthcare and a strong passion for the industry, combined with a deep understanding of the financial and legal aspects of executing deals.

References

  1. “GDP (current US$).” The World Bank. 2018. Web.