Recent pharmaceutical mergers and acquisitions indicate a trend of consolidation in the industry. Companies are looking for ways to bolster their research and development pipelines and reduce costs by rationalizing their combined sales and reducing other corporate overhead. The specter of possible healthcare reforms and the fact that drugs representing more than $74 billion in sales will lose patent protection by 2012 are also driving a new trend of later-stage mergers.
Deloitte's report, "Acquisitions versus Product Development: An Emerging Trend in Life Sciences," indicates an increasing preference for deals involving companies with compounds in the later stages of development.
"With so many rapidly changing dynamics -- the patent cliff, healthcare reform and still-dry capital markets -- the trends in life sciences industry consolidation are almost certain to continue with a growing emphasis on those deals with companies involved with late stage developed compounds," said Pfrang. "Healthy companies have good cause to pursue deals that promise faster revenue streams and profits. Likewise, cash-strapped companies -- particularly firms with rich research and development pipelines -- are likely to seek deals rather than face other alternatives."
Pfrang noted that acquirers or licensees have the opportunity to cut costs while leveraging their clinical development capabilities to accelerate the filing and launch of deals with a higher likelihood of demonstrating approvable drug efficacy profiles.
"However while late-stage deals may have lower overall risk, later-stage deals and associated higher deal valuations can pose greater financial risk," Pfrang added. "This is because executing and integrating later-stage deals often presents a unique set of challenges and missteps that can have a high cost, including delaying product launch, or worse, compromising the entire program."
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