Before discussing the merger and acquisition (M & A) happening in the pharma field, let’s look at some numbers:
· Last year, Teva acquired US generics major ivax for $ 7.4 bn, to become the world’s largest generics company.
· In 2004, Teva paid $3.4 bn for Sicor of the US
· Novartis had agreed to buy Speedel for about $880 milllion
· Sandoz bought Hexal and Eon Labs in Germany, Lek in Croatia, Sabex in Canada, Durascan in Denmark in 2004-2005
As they say, the data don’t blush, it always stare on your face and tell you the truth. The data tell us here, that M & A are happening, and happening big time..
Today, there is a global drift towards consolidation and going forward, as pressures on the pharmaceutical industry increases, this trend will continue. The lack of R & D productivity, expiring patents, generic competition and high profile product recalls are driving the M & A activity in the global pharmaceutical and biotech sector.
Let’s be just and fair, and look what lies in there for both the sides, i.e., the big pharma and smaller biotech companies..
Pharma sector is distinctive in the sense that it traverses across geographies as health has no boundaries, and this very boundary-less nature supports consolidation in this industry. With increased global interest in pharma and biotech, this sector has become an M & A favorite. Even, the largest pharmaceutical companies cannot diversify the underlying research and development-based investment risk. They must rely on a handful of flagship products for the majority of their sales, and the commercial life of a drug (from launch to patent expiry) is less than 7 years. Hence, major companies must develop a block-buster every 2-3 years, or face massive financial contraction.
I think without M & A, there would be no significant pharmaceutical industry-at least not in its current form. Also, I don’t see a significant generic industry-because few new drugs would be developed for the generic companies to copy. The reason is simple- companies would not be able to invest the huge amount of time and money it takes to develop a new drug, if they don’t have a sufficient opportunity to make a adequate return before generic companies copy and market the drug at a drastically reduced cost.
Now lets see, what is in it for the smaller companies..
Traditionally, the biotech companies develop their drugs through Phase 2 clinical trials, and then look out for a big pharma partner to assume responsibility for commercialization of the drug. Biotech companies rarely undertake the expense and risk of a major Phase 3 trial on their own (simply because it’s too costly), and failure to find a big pharma at that stage could be a red flag to its investors. So, Big pharma and biotech industry have established a model that allows biotechs to tap into the development, marketing and financial resources of big pharma, while giving pharmaceuticals a cost-effective, off-the-balance-sheet method for acquiring rights to promising drug candidates.
Another section which gets affected in this entire process of M & A is the workforce of the smaller company. The employees are the life line of any company and are the most vital resources. In 1974, USA enacted the “Employee Retirement Income Security Act”, also known as ERISA. It attaches supreme importance to the post-retirement schemes and welfare benefits as a part of corporate obligation. We all know that industries in India works under a controlled environment and it’s improbable that a company would not address the rights of the employee before going ahead with the M & A. Companies going for M & A strive to iron out the internal differences and work with the employee unions to maintain a level of employee satisfaction.
I would like to end this blog by quoting a phrase which I read somewhere:
“The economy is still bleeding, but the acquisitions indicate that the patient is no longer spurting blood all over the emergency room floor”
The debate is still on friends…..
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