As pressures on the pharmaceutical industry increase, global consolidation will continue, according to predictions in the latest Pharma Insights report from PricewaterhouseCoopers, according to a news release.
The lack of research and development (R&D;) productivity, patent expiries, generic competition and high profile product recalls are driving the current level of mergers and acquisition (M&A;) activity in the sector. The report, published annually by PricewaterhouseCoopers Corporate Finance, predicts the following impact of these pressures:
* Further big pharma companies divesting non-core divisions such as OTC
* Continuing consolidation in the Asia Pacific region
* The creation, by consolidation, of new 'big biotech' companies
* One or two deals furthering mid-tier consolidation in the European pharmaceutical sector
The Asia Pacific prediction builds on figures from 2004, which revealed that, for the first time, the number of deals in Asia Pacific (278) exceeded those in North America (252). The value of the Asia Pacific deals was also materially larger than in prior years, dominated by the $7.9 billion merger of Yamanouchi and Fujisawa in Japan.
In contrast to the pharma sector, the biotech sector is going through a period of relative calm from an M&A; perspective. This is, in part, due to the number of biotech companies that have set their sights on an Initial Public Offering (IPO). Most of the significant recent acquisitions in the sector have been led not by pharma companies, but by emerging 'big biotech' companies.
There is still a small window of opportunity for pharmaceutical and biotechnology flotations, although investors are undoubtedly more cautious than they were when the IPO window was last open in 2000. Pharma Insights predicts that investors are now looking for companies with diversified product portfolios and established revenue streams.
There are rumoured to be in excess of 200 biotech companies working towards IPOs in the near future, although the number that succeed will be considerably less. As IPO aspirations fail and cash piles start to dry up, the sector's M&A; imperative will strengthen.
Closely allied to the pharma sector is the medical devices sector, and here too the M&A; market remains active. Last year the value of deals announced in the sector was $46 billion, compared to only $25 billion in the previous year. Future outlook for M&A; activity in medical devices includes:
* The large global players at the high tech end (for example in the cardiovascular and orthopaedic sectors) will continue to acquire smaller local companies that are successful in developing exciting new in-fill technologies
* At the lower tech end (for example in the woundcare and surgical supplies sectors) there will be further consolidation (sometimes private equity-backed) to create mid-market companies capable of competing on a regional basis
* In other segments, such as the dental market, there will be changes in value chain dynamics � driven by factors such as technological innovation and political changes in national supply chain models � that give rise to deal opportunities
Neal Ransome, European Pharmaceutical Sector leader, PricewaterhouseCoopers Corporate Finance, said:
"We are expecting a healthy level of M&A; activity to continue in the next 12 months, particularly as consolidation in Europe and Asia remains high on the agenda.
"It is positive to see a good flow of fundraising in the sector, with 2004 witnessing the highest level of funds raised since 2000. However, the IPO windows of the world will not remain open indefinitely and as they start to close we expect to see an increasing number of biotech companies become available for acquisition."
To request a copy of Pharmaceutical Insights contact Kristina Blissett at [email protected]