Mega deals not ‘mega’ for Big Pharma R&D long term, says F&S

By Gareth Macdonald

- Last updated on GMT

Related tags: Big pharma

As rumours of a failed Sanofi Aventis’ bid for a US rival circulate, F&S’ analysis of M&As is well timed, even if its conclusions will be difficult reading for a Big Pharma sector set on replenishing pipelines via big deals.

Frost & Sullivan’s (F&S) new “M&A trends in Pharma-Biotech​” report suggests that, while more mega mergers are likely, opportunities presented by smaller biotech firms may be better for both the pharma and biotech sectors long-term.

Principal author Ranjith Gopinathan said that: “The real intention behind these [mega] mergers remains a question, as past mergers have not yielded substantial value addition in terms of R&D productivity​.”

He added that while such consolidation will strengthen Big Pharma’s bargaining power when negotiating with governments and payors, the long-term impact may be to stifle innovative R&D.

Farewell blockbusters, hello bio-blockbusters

Gopinathan believes that while Big Pharma’s blockbuster business model continues to evolve into a “niche-buster” approach to help stave of generic competition, there is still room for billion dollar drugs in the biologics market.

He cites the recent success of biologic medications like Rituxan (rituximab), Avastin (bevacizumab) and Enbrel (etanercept) as evidence of the market’s blockbuster revenue potential.

In the last few years, acquisitions like AstraZeneca’s purchase of MedImmune, GlaxoSmithKline’s (GSK) deal with Domantis and, more recently, Roche’s move for Genentech demonstrate growing Big Pharma recognition of biotech’s potential.

Gopinathan also suggests that the global downturn’s detrimental impact on funding availability coupled with an average 30 per cent decline in the value of biotech firms means that outright acquisitions rather than complex licensing deals are an attractive proposition.

F&S’ analysis fits with the conclusions of a recent survey by Ernst & Young, which suggested that funding opportunities will be few and far between for the foreseeable future and that biotech companies should look at other ways of raising capital.

Biotech sustainability

Gopinathan also discusses the importance of choosing the correct integration strategy. He suggests that, in general, biotech purchases should be kept as separate entities to retain the features that make them attractive in the first place.

One must realise that small, research-based biotech firms are able to attract the cream of scientific talent primarily due to [their] flexible and entrepreneurial work culture.

Hence any attempt to forcefully integrate the workforce with bottom-line focused…pharma companies would certainly demoralise them​.”

Gopinathan advocates that Big Pharma should allow biotech subsidiaries to act as R&D engines and instead focus on commercialising the resulting discoveries.

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