Pharma Deals: Recent M&A Activity and the Emerging Markets

Members of the pharmaceutical industry are facing a potentially difficult time. A number of larger companies are awaiting the expiry of patents on blockbuster drugs, which will see the compounds opened up for generic development.

The impact of this on their bottom lines could be massive.  With new drug delivery discovery proving a costly process, and the development of similar successes in the near future looking unlikely, big pharma companies will have to look to additional revenue streams.

Merger and acquisitions (M and A) activity in the emerging markets in China and India, among others, looks like it is forming a part of this, as does the acquisition of biotech firms.

Tim van Biesen and Norbert Hueltenschmidt, both partners with Bain & Co, writing for Forbes, explained: "Pharma deals can be complex, but when they're done right, an acquisition can help a pharma company face the headwinds of increasing regulatory hurdles, price pressures and rising competition".

"The relief from market pressures can be temporary, but a successful M and A strategy buys time for big pharma to focus on the real issue: how to kick-start the R&D [research and development] engine again," they said.

Recent merger and acquisition activity

Shareholders for Biovail Corp. and Valeant Pharmaceuticals International have just agreed to a definitive merger deal between the two companies, creating Canada's largest pharmaceutical company. The new company will operate under the name of Valeant Pharmaceuticals International.

A $2.8 billion (£1.8 billion) loan facility to finance the deal has been provided by Goldman Sachs Bank USA, Morgan Stanley & Co. Incorporated, and Jefferies & Company Inc. The deal sees the companies increase their presence significantly in North America, as well as eight other countries worldwide. The company's focus will be in four main areas: specialty neurology and dermatology, Canada and branded generics.

Bill Wells, current chief executive officer of Biovail and non-executive chairman of the new Valeant, said: "With strong cash flows, substantial synergy opportunities and minimal patent risk, the new Valeant presents the opportunity to create shareholder value at a level that would not have been possible for either company on a stand-alone basis."

Mergers and acquisitions in emerging markets

The expiration of a number of patents in the near future means serious business for the generics market and India is likely to be the focus of much of this activity.

ICRA ratings firm predicted that big pharma companies will take advantage of the large potential for generics growth in India and, in particular, local branding. The pharmaceutical market in the country is expected to reach $40 billion by 2020.

Concerns over the large number of acquisitions of Indian pharmaceutical companies by multinational firms has led the Department of Industrial Policy and Promotion to float a discussion paper on restriction of such activity, which cited concerns that large numbers of acquisitions would lead to higher drug prices.

However, industry experts believe that acquisitions in India are likely to continue at pace for some time.

Kevin Johnson of PanGenetics told the Independent: "One half of the merger and acquisition dollars that have gone into acquiring companies has been in the emerging markets sector."

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