Biopharmas will continue scrambling to carry out mergers and acquisitions (M&A) in 2016 since the same challenges that drove such activity to a record high last year will persist, EY has concluded in a report released today.
EY’s Firepower Index and Growth Gap Report 2016 identified such challenges as the growing debate over drug pricing, the arrival of biosimilars in the U.S., competition across key therapeutic specialties, and consolidation by payers.
All may dampen biopharmas’ growth projections, worsening the “growth gap” or difference in the sales growth of a company or sub-sector (such as big pharma) relative to overall drug market sales—and thus drive more M&A deals, EY observed.
Last year’s M&A deals set a record with more than $300 billion in deals announced, up from 2014’s record-high of $200 billion.
The challenges faced by biopharmas persist despite the industry moving past the peak of “patent cliff” exclusivity expirations, and developing new breakthrough therapies in indications that include cancer and infectious disease.
“But internal R&D successes won’t be enough for many of the industry’s biggest players who will still need to turn to M&A to reach growth goals,” the report stated.
Since few biopharmas have the resources for blockbuster deals—such as Pfizer’s planned $160 billion acquisition of Allergan, announced in November—companies are instead likelier to pursue smaller deals designed to target narrower therapeutic specialties, emerging scientific areas, geographic areas, and strategic pipeline gaps, EY said.
“While we can’t predict more large transformational deals over $100 billion in 2016, we do expect a continued brisk pace for acquisitions and a continuation of the robust divestiture environment, as companies seek to focus on and gain scale in their chosen therapeutic areas,” Glen Giovannetti, EY’s Global Life Sciences Leader, said in a statement.
The pressures that will continue to drive M&A deals “may make the lofty heights of $200 billion in annual M&A the new normal for the foreseeable future,” added Jeffrey Greene, EY’s Global Life Sciences Transaction Advisory Services Leader.
The industry’s fastest-growing players, biotech giants, have the financial means to pursue M&A, and are likely to do so as a strategic growth tool, EY said.
According to the report, big biotech has more money than ever available for deals, which the report calls “firepower”—more than $300 billion, compared with $25 billion worth of deals carried out in 2015. But the largest share of firepower, nearly 70%, is still held by big pharma at about $800 billion.
