Pharmaceutical M&A Set for a Busy Period
The pharmaceutical industry has scarcely been shy of mergers and acquisitions in recent years and the coming twenty four months could see even further growth, according to a new report from international accountancy firm KPMG.
The high-profile report, based on KPMG’s survey of 100 senior US pharmaceutical executives in May and June 2011, found that the vast majority (83 per cent) of management expected their firm to be involved in M&A activity in the coming two years. This expectation is chiefly due to a growing appetite for taking on new therapies and customers to increase growth in the face of increasing regulation and expiration of patents.
For many companies, the keenness on inorganic growth strategies is fueled by pressure to achieve returns on their large cash reserves. Some 75 per cent of the senior managers surveyed said they had a ‘significant’ amount of cash to spend over the coming years, with half expecting to increase their spending in the coming 12 months.
KPMG was clear in its predictions for the industry in the coming two years. The firm’s US Chair of Pharmaceuticals, Ed Giniat, said, "Mergers and acquisitions will be exceptional forces over the next two years, as industry executives look to gain access to new products and markets, and new revenue streams.
"Industry leaders have their work cut out for them to offset the patent losses and regulatory and pricing pressures,” he added.
Renewed regulatory pressures were identified as being the main issues facing 45 per cent of the firms surveyed, while patent expirations are proving problematic for 58 per cent. Some 34 per cent also said that their firms had a shortage of new products waiting to be developed or released in the pipeline. As a result, M&A is an obvious solution for these cash-rich companies.
It seems that pharmaceutical firms face a possible lack of organic growth without expansion through M&A. Many are planning to invest heavily in attempts to grow through acquisitions, with 41 per cent identifying this as the area they expect to spend most money on over the coming 12 months. Some 38 per cent said that their firms will spend on developing or buying new products and services, while 38 per cent are hoping to develop their own through R&D investment.
David Blumberg, KPMG’s national advisory pharmaceutical sector lead partner, said, “The good news is companies have enough cash to invest in or acquire new medical breakthroughs, or markets and customers to drive some growth.”
The positive attitude towards M&A certainly does not mean concerns about the future of the industry have disappeared, however. KPMG discovered that many of those questioned do not expect a turnaround in the economy to come around for several years and few are planning to invest in taking on more staff. When asked when they expected their revenues to increase, only 48 per cent said their revenues would be slightly higher in a year’s time. Some 23 per cent said they did not expect revenues to grow until 2014 or later and the same percentage said they never expect to return to pre-recession revenue levels.
KPMG’s report shows that M&A is central to the US pharmaceutical industry’s plans for stimulating growth in the coming two years, and they will undertake this strategy within a tough economic climate.
Thorough due diligence is an obvious essential in such circumstances and businesses need to do all they can to minimize any risk when looking to move into new markets and take on new products through M&A.
