Between 2011 and 2016, patents in developed markets
will expire on brand-name drugs that would otherwise have generated
sales of $127 billion, according to data firm IMS Health. To replace
some of the lost revenue, larger drugmakers are looking to bring in
new products, often in areas of significant scientific advancement
such as treatments for cancer, rare diseases and drugs designed to
turn off the activity of rogue genes. Much of the breakthrough
science is coming from biotechnology, meaning drugs derived from
There were 10 major M&A deals involving publicly traded biotech
companies last year, led by Amgen Inc's $10 billion buyout of Onyx
Pharmaceuticals. That was up from nine the previous year and six in
2011, according to JP Morgan.
"I think deal making this year will be even better because there was
a lot of validation last year," said Joseph Gulfo, chief executive
officer at Breakthrough Medical Innovations LLC, a consulting
company to drug and medical device companies. "The new discoveries
and data have sparked a tremendous amount of interest from the
Rather than the mega-mergers typically done to achieve big cost
savings through layoffs and factory closings, most drugmakers are
aiming for deals that increase sales. Many of them detailed their
strategies this month at the annual JP Morgan Healthcare
Those strategies included acquisitions of smaller companies as well
as risk-sharing through product licensing and drug development
AbbVie Inc, maker of top-selling arthritis drug Humira, is
interested in a "gradual buildup" of its pipeline of experimental
drugs, having forged a dozen collaborations with other drugmakers in
the past three years, most involving drugs in mid-stage trials, said
Chief Financial Officer Bill Chase.
"We don't have the need to go out and do a big deal. Large synergy
deals are not overly attractive," he said.
With the 65 percent run-up in the Nasdaq Biotechnology Index last
year, valuations of companies have gotten so high that licensing and
partnership deals are becoming a more popular way to share financial
"Biotech companies realize that developing a drug these days is
economically and mathematically different than 20 years ago," said
James Sabry, global head of partnering at Roche unit Genentech.
"Most don't have that level of sophistication. Partnering with a
pharma company is the only way to create long-term value."
Companies like Amgen and Roche performed well last year and don't
really need to acquire new assets, beyond companion diagnostics to
complement their products, said Anne O'Riordan, global managing
director of Accenture Life Sciences.
According to Accenture's analysis, drugmakers that rank in the
mid-tier in terms of growth prospects from new drugs and geographic
expansion would include GlaxoSmithKline, Novartis and Sanofi.
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A third clump of companies have relatively weak late-stage drug
development pipelines and are still in the midst of dealing with
expiring patents on top-selling drugs.
But most still have high profit margins and generate robust cash
flows. "A lot of them can afford to buy something," O'Riordan said.
AstraZeneca, which recently paid $4 billion to buy Bristol-Myers
Squibb's share of the two companies' diabetes joint venture,
probably falls into that third camp, O'Riordan said.
Israel-based drugmaker Teva Pharmaceutical Industries, recently
named turnaround specialist Erez Vigodman as its CEO and agreed to
buy NuPathe Inc to expand its portfolio of medicines to treat
conditions affecting the central nervous system.
Israel Makov, chairman of Biolight Israeli Life Sciences
Investments Ltd, and a former CEO of Teva, said he believes deal
flow among healthcare companies will be just as robust in 2014 as
last year: "Why? Because there is a lot of money in the system and
few places to invest it."
He predicted "more and more Big Pharma buying biotech because the
problem with Big Pharma is the pipeline, and biotech can provide
them the pipeline. Its even more expensive to develop a drug on your
own and fail."
Companies like Teva, Merck & Co, Eli Lilly and Pfizer are avidly on
the lookout for deals to supplement the flow of drugs from their own
Eli Lilly CEO John Lechleiter said his company is "very active in
the animal health space; we're gonna be buyers not sellers there."
He also said Lilly will look for ways to bolster its existing
strengths in therapeutic areas such as neuroscience, diabetes,
oncology, autoimmune diseases, or to widen its geographic presence.
"Growth is a challenge ... we have to take risk," Merck CEO Kenneth
Frazier said in comments at the conference, while noting that the
company still needs to build shareholder value and protect its
Roger Perlmutter, head of research at Merck, said there are no
longer many undervalued late-stage pharmaceutical product
candidates. "There are earlier-stage products and we intend to
exploit that opportunity," he said.
(Reporting by Deena Beasley and Ransdell
Pierson; editing by David Gregorio)
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