M&A has failed to build value for Big Pharma, report finds
Burrill says Big Pharma is under pressure to find better models to discover and develop new drugs
The aggressive strategy of mergers and acquisitions pursued by Big Pharma over the past decade in an effort to grow their businesses has been a failure according to a report by Burrill & Company.
Big Pharma has seen the loss of US$1 trillion in value during the past 10 years, the US-based financial services firm has found.
On 31 December 2000 the combined market capitalisation of 17 of the industry's most active acquirers was $1.57 trillion, excluding Johnson & Johnson. Ten years later that figure had shrunk to $1.04 trillion. When the combined value of the acquisitions these companies completed during this time – $425 billion – is added, close to a trillion dollars in value has been lost, without taking into account transactions of less than $10m.
The findings are contained in Biotech 2011-Life Sciences: Looking Back to See Ahead, Burrill & Company's 25th annual report on the biotech industry.
‘The loss of revenue the leading pharmaceutical companies are looking at over the next several years does not just reflect the impact of competition from generic drugs, but also the failure of Big Pharma's research and development to generate innovative products to replace those going off patent,’ says Steven Burrill, chief executive of Burrill & Company.
‘If the industry is to return to the type of growth it once enjoyed, it must innovate its way out of its current predicament.’
Big Pharma's r&d productivity has steadily fallen as the industry continues to produce roughly the same number of new drugs each year, in spite of a steady increase in r&d investment, the report says. At the same time, smaller companies have produced a growing share of new drugs and done so more cost effectively.
Pharmaceutical companies are now acquiring innovative biotech products and companies, but they are leaving in place the culture of these companies to protect innovation, says Burrill. In other instances, Big Pharma is seeking to emulate biotechs through new r&d models that create small, focused, independent research units that operate much like biotechs.
This is one of the many issues explored in the report. Other sections consider healthcare reform, the transformation to personalised medicine, regulation and policy reshaping the industry, development in industrial and agricultural biotechnology, the changing financing environment, and the growing importance of emerging economies within the industry.