CPhI Worldwide 2015

After the M&A bubble bursts: the four types of pharma firm to survive

By Fiona BARRY contact

- Last updated on GMT

Pharma companies will have to follow one of four archetypes to survive, said the M&A expert
Pharma companies will have to follow one of four archetypes to survive, said the M&A expert

Related tags: Pharma, Mergers and acquisitions

An advisor to the pharma industry on M&A says the current boom in pharma valuations will not last, and R&D cost pressures will reshape firms of the future.

Christoph Bieri, a managing partner at M&A advisory firm Kurmann Partners, and Chair of IMAP Healthcare Group spoke at CPhI Worldwide in Madrid, saying the transaction sizes of mergers and acquisitions in pharma have hit an all-time high: “You don’t see these revenue multiples in any other industry.​”

 According to Christoph Bieri, a managing partner at M&A advisory firm Kurmann Partners, and Chair of IMAP Healthcare Group, transaction sizes of mergers and acquisitions in pharma have hit an all-time high. “You don’t see these revenue multiples in any other industry,​” he said at a Pre-Connect Congress at CPhI Worldwide in Madrid.

This year, bills for Valeant’s acquisition of Salix ($15bn), Mylan’s purchase of Perrigo ($35bn), and Actavis’s takeover of Allergan ($63bn) were among the highest ever in pharma.  

Roche: ‘this bubble will burst’

Some of this unprecedented shareholder value is created by “multiple acquirers​” – as with Allergan and Valeant, said Biere.

In the last three years alone, Allergan (or its previous incarnations Actavis and Watson) have acquired Kythera,Irish Allergan,​ Durata, Auden Mckenzie, Rhythm, Furiex, Forest Laboratories,​ Warner Chilcot, and Actavis.​ Valeant has made 14 acquisitions since 2008, most recently Sprout,Amoun,Salix,​ Dendreon and PreCision.

But serial M&A alone isn’t enough to explain recent massive valuations in pharma, in Bieri’s view. He said an advisor told him his client, a large pharma analytics firm “always paid significantly more than the maximum which we calculated.​” This view echoes that of Roche CEO Severin Schwan, who told the Financial Times last month “This bubble will burst . . . and people will look back and they will say, like with the internet crisis, what happened? Why didn’t we recognise this?​”

After the bubble bursts: what’s next for pharma?

In the future, mounting costs will lead pharma companies to restructure, Bieri said, especially in response to pressure from governments to lower their healthcare spending. He predicted R&D will become prohibitively expensive for medium-sized players, leading companies to reshape themselves according to four strategic archetypes:

Originators

The large pharma companies with excellence in R&D, developing innovator drugs. Most manufacturing will be outsourced. M&A to expand pipeline.

Generics and biosimilar makers

Manufacturers of low-cost copies. Big in size, using M&A to gain market access and production capacity.

“Point-of-call specialists”

Companies building a niche competence and strong market share in one area, e.g. orphan drugs or diabetes. Manufacturing outsourced.

Over-the-counter companies

A growing segment, marketed straight to consumers. “Opportunistic” M&A. May use outsourcing for economies of scale.

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