According to GlobalData’s Q4 2023 update, there were 426 M&A deals announced in the global pharmaceutical industry over the year, worth a total of USD 84.2Bn.
We see a plethora of different approaches to M&A in the pharmaceutical industry, which are as much about each company’s philosophy as they are based on rational commercial decision making.
We summarise below some of the key themes in the market.
Molecule class and mechanism of action: Advances in research technology are driving a rapid rise in the number of molecular classes – as well as in their potential applications.
With the evolving understanding about the potential of recently deployed molecule types, this level of science is increasingly becoming a recognised framework in M&A decision making.
Therapeutic area and disease target: Ordinarily, larger pharma companies are organised into separate teams based on a therapeutic area.
Screening the market to identify under-served therapeutic areas is an approach that guides some pharmaceutical companies in their focus as they search for new acquisitions.
Often this approach is one of buy and build around a key initial acquisition to create a platform where synergies in knowledge and sales channels can be exploited.
Agent life cycle stage: While a few years ago small biotech companies were seen as competitors to the large pharmaceutical groups, increasingly they regard early-stage pharmaceutical development at smaller companies as a complement to their own efforts.
Critically, they also view them an ‘option’ for a future acquisition if the strategic product fit and research results are positive.
Corporates and investors alike understand the trade-off between the ability to acquire successful emerging companies at higher valuation than their own, vs internally incurring the R&D costs required to reach positive results.
Opportunistic acquisitions. As large corporates reshuffle their portfolios regularly, either as part of ongoing strategic reviews or as part of maturing segments, assets are opportunistically divested and acquired.
A specialised group of investors is emerging around the theme of orphan assets that are offloaded either as single agents or as part of larger portfolios.
Non-agent acquisitions. As the value chain of pharmaceutical companies continues to evolve and becomes increasingly complex, their view of core strategic functions also evolves.
During periods of economic expansion and accommodating financial conditions, the general approach has been to expand both ‘upstream’ into the end customer and ‘downstream’ into earlier stages of research and development – often through the growth of venture capital-like investment arms.
As macro conditions reverse however, such efforts are often the first ones to be subject of cuts and reductions.
In summary, big pharma companies will pursue multiple strategies across the organisation to increase pipeline and commercial optionality both in breadth and in depth.
For small companies, strategy will be more narrowly defined but evolve alongside each company’s growth. Long-term strategic planning must recognise that what is right for today may not be tomorrow’s best M&A approach.
Dr Joe Taylor is Principal at Candesic and Dr Leonid Shapiro is Managing Partner at Candesic. Go to candesic.com
