What can recent mergers mean for the future of pharmaceutical industry?
Expensive pharmaceutical deals in the industry are in a mad fury of alliances this year on account of the patent expiries that big drug companies are faced with. In an attempt to make up for the losses, hence, these companies are teaming up with their better off competitors.
The world’s most well-known drug maker, Pfizer and London’s AstraZeneca have been heard to contemplate joining hands in a potential $100 billion epic merger which is a sign that the pharmaceutical sector is brimming with many more such deals in the days to come.
Mergermarket, the famous research firm, shows data that suggest that five pharmacy deals valuing more than $2 billion in the first four months of 2014 are of the same momentum possibly, like seven deals of the same value that were announced in the entire year of 2013.
If as presumed, the number of $2 billion pharma deals exceeds the number last year, it will turn out being the most of that volume since the year 2007, when eleven deals of that magnitude materialized, says Mergermarket.
Till date in the year 2014, the deals that have been announced, sum up to $49.4 billion, and is definitely greater than the worth of all the deals --$34.5 billion, that was announced in 2013.American drug companies in the lookout for deals are in their fastest beginning since the first quarter of 2009.
Mergemarket also points out that most companies that are being pursued by the U.S are located in Europe.
Although the possible deal between Pfizer and AstraZeneca wouldn’t see the light of the day anytime soon, the business proposal is similar to the agenda that a lot of other pharmaceutical deals have made public in recent times.
Phenomenal drugs witnessing patent expiries have lead to decreasing profits for both Pfizer and AstraZeneca. A joint effort in marketing campaigns would be beneficial in effective drug promotions especially for drugs that have been launched in the market.
The hence combined venture would push more finished drugs into the market through such an arrangement, thereby reducing costs by doing away with overabundant drugs.
Corporate taxes are lower in Britain than in the U.S and this means American pharmaceutical companies can save a lot they spend on taxes.
Pharmaceutical giants are in a mad rush to team up with other pharmaceutical companies mostly in Europe, in the hope to bring down risky cost structures and save gains which are continually being offset by drug patent expirations.
“The thought process is that it may be faster and more prudent to buy products through mergers and acquisitions,” said Olga Oksman with Mergermarket.
Valeant Pharmaceutical’s latest bid to acquire Botox maker Allergan for $50 billion, a jump from the earlier quoted $47 billion, is yet another good example of that model, as was Actavis’ $25 billion bid earlier this year for Forest Labs, and is still awaiting court settlement.
Furthermore, pharmaceutical biggies: GlaxoSmithKline PLC and Novartis AG have now disclosed their series of transactions leading to a team-up , that can amount to more than $20 billion.
Oksman explained that buying already-established products is not that risky and comes at a lower cost than attempting to develop new products through an expensive research and development departments, “It takes out the uncertainty principle,” she said.
A lot of advantages can arise from these mergers and acquisitions.
For instance, bigger pharmaceutical giants can now concentrate on marketing efficiencies by promoting drugs manufactured by smaller ones. Also, since a lot of research and will be required to bring out better drugs in a highly competitive yet lucrative pharmaceutical market, these companies will be in the lookout for cheap labour : looks like Asian countries can gain from such financial arrangements in terms of employment and national income.
These deals are now a characteristic of the pharmaceutical industry as more and more patents near expiry and operating within a cost cutting framework becomes crucial.
“We know there will be other big deals coming down the pipeline,” said Oksman.