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The pharmaceutical small molecule API manufacturing industry is now experiencing a period of rapid change. This change is being driven by factors such as the changing nature of the drugs being made, expiry of patents covering the top-selling pharmaceuticals, the growth of the API manufacturing industry in India, China and Asia, shrinking margins causing downward pressure on pricing and the drive by governments to cut spending on drugs. This paper takes a look at how these trends are helping shape mergers and acquisitions (M&A) activity within this dynamic sector.
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In the last few years, pharmaceutical companies have become increasingly interested in biomarkers and their incorporation into company drug development programmes and use as companion tests for targeted therapeutics. Identifying patients that will benefit from a drug and eliminating those that will not is increasingly important.
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The life sciences industry has never seen such an intensity of deal-making, especially that of licensing, than in the past six years. Some of the reasons for this are quite evident: growing pharmaceutical companies have greater pipeline needs, a spate of patent expiries threatens future revenues and research and development (R&D) externalisation has become central to the innovation strategies of cash-rich companies. Product licensing has become an efficient tool in commercialising extended numbers of innovative technologies with limited financial risks, as most of the acquisition expenses of the innovation are dependent on development and commercial success.
This article looks at a few of the most important measures to bear in mind prior to designing deal-making strategies that any expert deal-maker executive should know about.
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The late 1990s and early years of the current decade saw a number of mega-mergers between companies, which defined the current shape of the pharmaceutical industry, and have established a hierarchy of companies commonly referred to as `big pharma'. In recent years, however, there have been no mega-mergers, suggesting that the industry might have lost its appetite for such deals. The publicly explained rationale for these pharma mergers might differ between transactions, but the overall results are fairly consistent throughout the industry. First, combined companies allow a large degree of cost-cutting in overlapping functions, thus increasing profitability and giving an obvious and tangible return to investors. Second, enlarged R&D operations increase the development of new drugs that will drive future sales for the new company. Third, the combined marketing capabilities and sales forces of two already large companies will have a synergistic effect, ensuring that the new company will always have an advantage over its smaller competitors, and allowing a certain degree of power to influence the market in its favour.
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The ophthalmology drug segment continues to shine brightly with a number of deals announced in November such as Genentech’s partnering with Novartis to split ex-US rights to Ophthotech’s eye drug, which could be worth more than $1 billion. Allergan, another of the major players in the market, recently acquired rights to Mimetogen’s tavilermide for $50 million upfront and more payments down the line.
Biopharma’s interest in the segment is buoyed by the strong growth in ophthalmology drug sales which are benefiting directly from substantial increases in the number of people suffering from age related ophthalmologic conditions in Western markets and Japan. The developing world is adding to this momentum as increasing affluence drives increased expenditures in all areas of healthcare including vision impairment and eye diseases. The headwinds created by positive demographics for the sector are being exploited by the emergence of new technologies for treating ophthalmic diseases.
