So far this year, global pharma M&As have already topped $160 billion (Rs 8000 billion rupees), and going by the trend, this may only be the beginning. But what’s notable is that these mega mergers that are marking their presence in the global pharma landscape appear to be driven more by survival instincts than strategic imperatives.
‘Time to look for M&A opportunities’
Pushed by drying product pipelines, expiring patents, increased competition from generics and looming healthcare reforms in the US —– the world’s largest and the most profitable market — pharma majors have been forced to rethink and outline newer strategies just to stay in the game. This increasing threat from patent expiries and drying product pipelines, which the generics are exploiting through better penetration, poses a considerable revenue risk to the originator companies.
What also poses a threat is the likely increase in generic sales, given the current recessionary trends, as these drugs cost roughly 30-80 per cent less than original branded versions. According to the Generic Pharmaceutical Association, the number of prescriptions for generic drugs in the US grew by 8 per cent last year and now account for 68 per cent of all prescriptions filled.
Financial crisis hits global M&A deals
Compulsion to survive
If the urge to merge finds its roots from the compulsion to survive the tough times, the withered valuations of the target companies have probably added to the momentum.
While Indian pharma stocks, for most part of last year held their ground well, the October 2008 correction changed this with many of these ‘defensive’ stocks also joining the market meltdown. On an average, valuation multiples of pharma stocks have collapsed from the high-teens to lower end of the band. This has also helped the cash-rich pharma companies’ M&A appetite.
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However, it merits attention that M&As are not just about innovator companies securing a berth on the generics bandwagon. These deals help generic players too, as they stand to gain in terms of marketing muscle and entry into lucrative markets.