Frost & Sullivan predicts shift of big pharma towards blockbuster biologics
Recent surge in M&A activities cannot solely be attributed to the current economic downturn
The recent surge in M&A activities, with four in the first half of 2009 alone, cannot solely be attributed to the current economic downturn, says Frost & Sullivan.
In its report, "M&A Trends in Pharma-Biotech: An Analysis of a Business Model", F&S says big pharma historically has been fighting, with little success, various issues such as the patent expiry of blockbuster molecules, regulatory hurdles, generics competition, under-utilisation of resources and a declining product pipeline due to low r&d productivity. All of these factors have undoubtedly led to lower valuations of the stock value of big pharma companies.
The current economic downturn has further reduced their value, creating a climate for large-scale M&A's, and big pharma companies with strong drug development pipelines and low exposure to patent expiries are the most attractive targets. Schering-Plough's pipeline, consisting mainly of biologics, with about 18 drugs in Phase III and its relatively low exposure to patent expiries are the key reasons for its acquisition by Merck & Co, the report says.
However, the real intention behind these mergers remains unclear as past takeovers have not yielded substantial value in terms of r&d productivity.
These deals will also lead to further activity, since some of the non core divisions of the acquired or merged companies will need to be sold. For example, Sanofi sold its Campto drug to Pfizer and its Arixtra and Fraxiparine drugs to GSK following its merger with Aventis.
One clear outcome of the rapid consolidation of the pharmaceutical industry will be the increased bargaining power of big pharma vis-à-vis payers and the government. Consequently, it is assumed that any further consolidation, which is very likely, will lead to a further strengthening of the big pharma cartel, which may not necessarily provide benefits to patients.
BMS, AstraZeneca, Sanofi-Aventis, GSK, Novartis and J&J could be the drivers of future M&A's owing to their strong cash positions, says the report.
Another notable trend is the steady shift of big pharma towards biotech, with a shift from the small-molecule blockbuster model to a biologics based blockbuster. Biologics such as Rituxan, Avastin, and Enbrel have already proved their blockbuster potential. Having seen the tremendous opportunity in biologics, especially in oncology, auto-immune and CNS treatments, there has been a surge in M&A activities in the pharma-biotech space.
A shift from "big pharma" to "big biopharma" is evident. The recent acquisition of MedImmune by AstraZeneca, Organon Biosciences by Schering-Plough, Scios by J&J, Serenex & CovX by Pfizer, Domantis by GSK, NovaCardia and Abmaxis, GlycoFi and Sirna Therapeutics by Merck & Co, all emphasise this trend, the report says.
Past partnerships and alliances with biotech companies are also being cemented through outright acquisitions by big pharma. For instance, Merck & Co had a partnership with GlycoFi prior to its acquisition. Genzyme had co-developed the oncology product, Clofarabine with Bioenvision, prior to its acquisition. AstraZeneca and Pfizer had licensing deals with Cambridge Antibody and Meridica respectively prior to their acquisitions.
With the credit crunch reducing the value of many biotech companies by about 30 per cent, it is currently more attractive to acquire them rather than negotiate complex licensing deals. In addition, a declining source of funding owing to the credit crunch, a lack of IPOs and debt burden have led small- and medium-sized biotech companies to be easy targets for acquisition.
Frost & Sullivan also says a substantial number of biotech with biotech M&A deals will occur due to possible entry of biogenerics/biosimilars in the next few years.
