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:
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.
Companies building a niche competence and strong market share in one area, e.g. orphan drugs or diabetes. Manufacturing outsourced.
A growing segment, marketed straight to consumers. “Opportunistic” M&A. May use outsourcing for economies of scale.