Pharma shift determines venture capital landscape
with a demand for acquisitions shifting in the pharmaceutical
sector. The news could signal a trend towards the acquisition of
compounds, rights, licenses and product lines, rather than deals
for entire companies.
A new report revealed that during the first half of the year ended June 30, 2005, the pharmaceutical sector captured far less of the total venture capital committed to health care than during the first six months of last year.
Merger and acquisition statistics for the first half of this year revealed changes in deal volume and in total finance committed. The number of mergers and acquisitions in the pharmaceutical sector was down for the first half of 2005, with just 57 deals, compared to 84 in the first half of 2004.
Fewer large venture financings are being recorded in the pharmaceutical sector. This year, 15 pharmas announced venture rounds of $25 million or more, totalling almost $580 million, but during the first half of 2004, 23 had announced venture rounds of $25 million or more, totalling more than $876 million.
High profile deals included during the first half of 2005 included Novartis' acquisition of Hexel AG and 67.7 per cent of Eon Labs for $8.4 billion (€6.9 billion); Sankyo' acquisition of Daiichi Pharmaceutical for $7.8 billion; and Solvay Pharmaceuticals acquisition of Fournier Pharmaceuticals for $2.1 billion.
The results seem to go against the widely held belief that large pharmaceutical firms, which have cut internal spending on developing new drugs, are instead buying up small firms that have already done most of the basic research necessary to create a new product.
The report, compiled by Irving Levin Associates, confirmed that approximately $80 billion was committed to fund pharmaceutical mergers and acquisitions during the first half of last year; during the first six months of 2005, only about $23 billion has been committed.
But if the single largest deal of each six-month period is excluded namely the Sanofi-Aventis deal for $65.5 billion in 2004 and the Novartis/Struengmann deal for $8.4 billion in 2005, the totals are about the same, approximately $15 billion.
Based on revealed prices, the pharmaceuticals sector represents 45 per cent of all spending committed to health care mergers and acquisitions during the six months ended June 30, 2005.
"Although the number and, average size, of mergers and acquisitions in the pharmaceutical sector decreased during the first half of this year, the demand for generic pharmaceuticals is increasing, as name-brand drugs go off patent," said Stephen Monroe, editor of The SeniorCare Investor.
Big pharma companies are increasingly buying up late-stage biotechs to replace revenues from drugs going off patent. Further along the growth cycle, specialty and niche players are acquiring generic and OTC drugs and drug companies in response to the increased supply of, and demand for, lower-cost pharmaceuticals.