The global pharmaceutical sector has been rocked by several significant mergers and acquisitions in 2015:
- Indian generics firm Sun Pharma purchased GSK’s Australian opiates operations, citing the development of analgesics as a key growth opportunity
- US-based AbbVie acquired Pharmacyclics, with a central motivation being the acquisition of the blockbuster cancer drug Imbruvica
- Swiss giant Pfizer received approval for its $17 billion (USD) takeover of Hospira from the latter company’s shareholders. Pfizer’s portfolio of sterile injectables and biosimilars will be significantly enhanced upon completion of the deal
- Irish-American generics firm Endo International purchased Par Pharmaceutical, citing Par’s diverse product portfolio and robust development pipeline with over 200 drug applications awaiting FDA approval
- US-based Celgene acquired Receptos in a deal that bolsters its inflammation and immunology portfolio with the acquisition of Ozanimod, a lead candidate for the treatment of multiple sclerosis and ulcerative colitis
- Following the sale of its generics business to Teva, US-based Allergan focused on the development of its branded operations with the acquisition of Naurex. Naurex’s lead candidate, Rapastinel, is in clinical trials as a promising therapy for depression
- UK-based Hikma Pharmaceuticals acquired Roxane Laboratories, citing Roxane’s existing portfolio and attractive development pipeline as key motivating factors
What do all of these transactions have in common? All were motivated to a significant degree by the commercialization potential of the target’s development pipeline. While the motivations behind such transactions are always multi-faceted, the value of the target company’s research and development (R&D) pipeline is increasingly a central consideration. This trend is being driven by rising R&D costs and the reality that few new drugs will become market blockbusters, defined as $1 billion (USD) worth of annual sales. With the average cost of bringing a new drug to market at $2.5 billion (USD), many companies are turning their attention to M&A as a more cost-effective way to expand their portfolios of lead candidates. Indeed, the value of M&A activity in the pharmaceutical sector thus far in 2015 exceeds the value for the same period last year by over 90%, reaching heights not seen since 2009.
The consolidation of drug portfolios and development pipelines driven by commercialization potential is contributing to a pyramidal reshaping of the industry’s landscape. While one company may have shepherded a new drug through development to market entry in the past, the current trend of small and niche players being acquired by the industry leaders means fewer companies are responsible for a greater share of new drug commercialization activity.
The root cause of this trend is likely a reshaping of the pharmaceutical market itself, driven by advances in biotechnology and the loss of market exclusivity by some leading drugs. Instead of focusing on finding novel therapeutic compounds, modern drug development is increasingly focused on the commercialization of new dosage forms and uses of existing compounds. Advances in computerized molecular modeling techniques and laboratory tools have made drug discovery more accessible to smaller developers. Moreover, the development of biologics, a new frontier in drug discovery whereby therapeutic substances are synthesized by living cells, has dramatically altered the traditional chemical synthesis paradigm that has historically underpinned the industry. The result is the compression of traditional R&D timelines as developers strive to commercialize more new drugs in less time to stay competitive. From a health care perspective, a potential benefit of this trend for patients is quicker access to a larger selection of new drugs.
The author would like to thank Mark Vanderveken, summer student, for his assistance in preparing this legal update.