Sell-Offs and Mergers and Trades, Oh My!

Posted by Bruce Chin on Aug 18, 2015 11:44:41 AM
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Current Trends in Big Pharma and What It Says About the Market

After unprecedented M&A activity in the last 20 years in Big Pharma, the trend of devolution isn’t just a topic that became popularised in Scotland. The pharmaceutical industry seems to be experiencing a similar trend. From the spin-off of AbbVie from Abbott in 2012 to Baxter’s specialised medicines spin-off, Baxalta, last month, the trend seems to be continuing. It continues with the swap of Novartis’s non-influenza vaccines business for the bulk of GSK’s oncology portfolio.

We just saw the merger of Actavis and Allergan, forming what is now deemed “the new Allergan.” As both organisations were starting to acclimatise, we suddenly received the news last month that Teva is now buying Allergan’s (formerly Actavis’) generics portfolio for $40.5 billion, of which $34 billion is a cash loan with heavy-hitters backing. What does all this frenetic activity say about the market? Why is this taking place? What do these companies stand to gain from this? What does this mean for the marketplace?

Big Pharma swapping assets like other industries

The rapid pace of innovation has become a game changer for Big Pharma, one that is akin to chess. With the need to make more money, pharmaceutical companies are responding to trends by moving the pieces of their business around. By breaking apart their businesses into smaller components that can be bought, sold and traded with more agility, Big Pharma really are just starting to behave more like other industries, such as the chemical industry, that seek to achieve a return on a portfolio of assets and then swap those assets to rebalance the portfolio for maximum performance.

Indeed, chemicals and pharma have a lot in common - lots of value in IP, intensive R&D and long product development cycles. DuPont has been under pressure from activist investors to perform this asset dance, to which pharma is now similarly responding. The driving consideration is, "Can I make more money from this asset, be it a single molecule, a particular drug class, or an entire BU than my competitor(s)?"

Merger and spin-off activity is picking up

As we speak, the activity seems to be picking up, with Shire now making a $30 billion offer for Baxalta. Both were just catching a breath, from Abbott’s aborted takeover bid of the former and the latter just starting to stand on its own like a new-born colt. The term “diversified pharmaceutical company,” will become the “new normal” in the same way that “orange is the new black” (again). As these companies chop and change, like people in Silicon Valley changing companies faster than they change socks, large and mid-size pharmaceutical firms are facing major challenges.

The era of traditional Big Pharma has been in its twilight for some time. The money that can be derived from Blockbuster Drugs, holding all other factors constant, is waning as the big, mainstream diseases are already being tackled. Efforts to recoup R&D costs and profits increasingly come from smaller patient populations of more niched diseases requiring more boutique drugs. A greater focus is now on “rare” or “orphan” diseases, personalised medicine and LTC.

Faster like a speedboat

This new gestalt, notorious in the past for being lumbering and slow, will have to move more like a speedboat and less like an oil tanker to address these looming changes. Through acquisitions, devolution and partnerships, Big Pharma is working with these smaller, cutting-edge health tech firms and creating partnerships. Despite the ever-pressing needs of payers, which is a whole other matter, pharma companies are catalysing innovation, focusing more on prevention and defining “new healthcare” to address the changing healthcare needs for all of us while ascertaining their own longevity and profitability.

Topics: Competitive Intelligence, Market Analysis, Medical Devices, Pharma, Healthcare, Industry Convergence, Life Cycle Management, Life Sciences, Merger and Acquisition, Product Positioning, Competitive Strategy

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