Biopharma M&A - The consolidation of the industry
The biopharma industry is a very active and robust industry with frequent M&A deals are struck at large amounts of money. This trend has been increasing for the past five years due to the environmental influences by the FDA. Studies have shown that even though the investment for R&D is increasing, the number of approved drugs are decreasing. The FDA has put this industry under pressure with more regulations and safety rule throughout the value chain, especially on the in the distribution, marketing and sales channels. The biopharma industry is divided into two main models - research focused companies and fully integrated companies. The research companies are smaller organization that focus on specific R&D activity and develop the product till a certain stage of the approval process. These companies become an attractive acquisition as they are able incubate their product until the second phase of the clinical trials. The giants in the biopharma industry have the resource to pay for the costly phase three of the clinical trials, distribute, market and sell the drug to the consumers. These environmental factors have made M&A a good strategy for the small and large biopharma organizations to be able to survive in this challenging industry.
Past few years has shown a significant increase in M&A and the industry is becoming more and more consolidated with few giant corporations are playing a key role in this industry. These pharmaceutical companies are looking to buy organizations with products in phase II and sharing the risk by merging with them. Starting from the clinical trials to sales to the doctors will be the parent company's responsibility. The large pharmaceutical companies are investing more in the downstream processes such as marketing and sales. Their R&D efficiency has been very poor because their model for research and development could not meet the specific demands by the FDA and healthcare industry. requirements of the healthcare
In 2009, Pfizer bought Wyeth Pharmaceutical for a massive $68 billion and in the same year Merck paid $44 billion to Schering-Plough. These huge M&A deals are few of the multi-billion dollar agreements that were signed. The total value of for the M&A for 2009 was $142 billion. 2011 had a total of 70 more mergers that was worth 40% more compared to 2010. This trend shows of the industry is adapting to the environmental influences and is a interesting example of the industry landscape can dramatically change. It is important the FDA makes sure these drugs are safe and effective for the patients - mistake in this role can lead to severe injury or even death to the patients who depend on these medications. Safety is a major concern for FDA and this results in more stringent policies which affect the biopharma business. We learned the development of industry last week and how industry is evolving consistently. This case is a recent example of how a industry responds to changes in the competitive environment. I would like to ask the class, if there have been any other cases of regulations changing the industry landscape? How has M&A played a role in other industries?