Study shows that worldwide M&A activity declines for pharma companies as biotech increases

Oxford, UK October 15, 2003 A study by PharmaVentures shows that M&A activity among pharmaceutical companies worldwide has declined radically over the past seven years while biotech-biotech activity has risen dramatically.

In 1996, there were over 100 reported mergers and acquisitions among pharmaceutical companies. Over the following years, this number has declined steadily to about 20 per year. In complete contrast to the trend in pharmaceutical companies, the trend between biotech companies has been the opposite, rising from around 20 in 1996 to 91 this year as the sector undergoes major consolidation. A survey by PharmaVentures among executives within the industry has shown that this trend is likely to continue.

The opportunity for consolidation among large pharmaceutical companies has declined as their options have become restricted due to falling number of suitable targets and other factors such as increased regulatory scrutiny. On the other hand, poor financial/equity markets and a need to achieve a critical mass in order to reduce the risk of failure have driven the opportunity for biotech consolidation.

“What we are witnessing is the aftermath of the technology boom of 2000, where some biotech companies have faced the dual difficulty of both depleted cash balances as well as reduced market value,” says Dr Fintan Walton, CEO of PharmaVentures. “This has created an opportunity for larger and more healthy biotechs to swallow up less healthy but still promising biotech companies,” he continued. “On the other hand, larger pharmaceutical companies have found that mergers and acquisition strategies can have mixed benefits. Achieving a larger size provides for improved efficiencies along the value chain and greater market presence, however, the consolidation process itself can have detrimental effects including the slowing down of product development.”

PharmaVentures is a pharmaceutical business strategy consultancy based in Oxford, UK.