[BLOG]: Big pharma and the new trend of acquisitions
More focused business strategy needed to be successful
Biologic and pharmaceutical companies, along with their financial advisors or venture capital partners, have used mergers and acquisitions over the years to create value to keep their leading positions in a changing market. The era of pharmaceutical companies relying on blockbusters for their growth is over as more and more of these drugs have faced patent expiration, with no indication that new medicinal discoveries will emerge to take their place.
Pharmaceutical companies now operate in a market environment of increasing economic pressure. One obvious way to create value for stakeholders is through mergers and acquisitions. Pharmaceutical companies are realizing that to be successful in today’s market they need to develop a more focused business strategy. As they create businesses with more focus, they look to divest products or businesses that no longer fit with this new strategy. Similarly, pharmaceutical companies are positioning to purchase businesses and products to create sufficient scale in their market.
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Rockoff and Silverman of the Wall Street Journal identified earlier this week that “The recent trend by pharmaceutical companies to find growth by acquiring rival companies or their drugs is driven by the need to maximize the company’s value to shareholders.” 1
The historical business model of researching and developing new drugs has fallen by the wayside as this current wave takes over the industry. New players or funders of pharma and bio firms have emerged, and they are dictating the growth pace in the industry.
This is not what you would expect to see from an industry in which there is the need to establish a value proposition or drive further medical innovation—yet it’s a battle for economic survival among all healthcare stakeholders. Bio and pharmaceutical companies’ struggle to find their direction in an evolving industry, not realizing their historical customer and decision-making process has already changed. As they need to develop a successful strategy for growth, few pharma leaders have a strategy. Instead of investing their resources in declining research and development productivity, pharma companies have turned to the new trend of acquisition toward short-term gains.
To achieve that quick payback from their acquisitions in particular, those pharmaceutical companies are resorting to increasing the prices of newly acquired drugs while adding little benefit or value to patients. This has resulted in added pushback from payors and providers. As talk around value continues in the marketplace, bio and pharma firms struggle to demonstrate value, whether based on economics or clinical performance. Such a marketplace situation usually indicates a need for real strategy, not tactics, with customers.