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Healthcare Sector Mergers and Acquisitions

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June 15th, 2017 - 0 Comments

Why are there increasing numbers of mergers in pharma, and what are the impacts on market access, patient access and the economy?

Bayer and Monsanto, major pharma players, merged for a mammoth $62 billion in 2016. This news blew up the headlines and prompted a lot of interesting debate throughout the pharmaceutical industry. The deal is a great example of this trending behavior of major mergers in the healthcare sector. Increasingly, pharma companies are buying, selling, and combining with different companies in order to finance or aid themselves, which allows them to grow swiftly without creating another business entity.

Below, we will cover how we can categories mergers and acquisitions within the healthcare sector, the reasons behind such a move, and examples of how mergers and acquisitions in healthcare can go bad.

 

How to categorize mergers and acquisitions throughout the healthcare sector

2016 was a big year for healthcare acquisitions and major mergers, if not for money (in many cases, mergers happened for undisclosed amounts), then for sheer volume.

A 2011 study titled Large Wealth Creation in Mergers and Acquisitions categorizes most mergers and acquisitions that create large gains for acquirer shareholders as:

  1. Typical “bolt-on” deals smaller than the acquirer’s size
  2. Transaction-specific events (not firm or CEO-specific events)
  3. Enhanced by synergies from a strategic fit in the supply chain
  4. Executed by bidders with high valuation multiples

What is behind mergers and acquisitions in the pharmaceutical sector?

So, what is behind this modern trend? The competitive business environment in the last decade has increased the burden on drug manufacturing, research and development, and regulatory departments. This lead to a saturation in the growth of the pharmaceutical industry worldwide.

The avenues for growth are now limited because of the declining prescriptions of branded drugs and the advent of generic drugs. These contribute to the rising number of mergers and acquisitions, and reflect their pressing need in the pharmaceutical industry.

More specifically, companies in the healthcare sector are leaning towards mergers and acquisitions to:

  1. Avoid tax
  2. Overcome the competition
  3. Diversify their products or services
  4. Identify new markets and better sales opportunities
  5. Provide growth opportunities

Some multinational corporations might be increasingly agreeing to acquisitions because of the rising demand for research showing the effectiveness and value of new medicines in real-world settings. Thus, research needs evidence-based solutions and market entry strategies to justify the end product.

When mergers and acquisitions in the healthcare sector go bad

Mergers and acquisitions usually benefit everyone involved. However, the healthcare industry has also witnessed a few disastrous examples where matters did not transpire as intended. As an example, we can look to the collapse of Pfizer’s $160bn merger with Allergan in April 2016, which sent shockwaves across the pharma world.

Every coin has two sides, and for every possible benefit in mergers and acquisitions, there are some risks involved as well. Mergers and acquisitions can experience the following drawbacks:

  1. Mergers and acquisitions can be bad for consumers: Mergers result in less competition within the industry, and the new company may have higher pricing power. This is a fairly serious market access issue.
  2. Decrease in jobs: A merger causes job losses. An acquiring company may shut down the under-performing segments of the company.
  3. Occasional diseconomies of scale: The increased size may lead to diseconomies of scale for the new company. It may not have the control required to run a bigger company.

This symbiotic relationship is more about “mutualism”. Mergers are not only about money. They also help the healthcare sector to better understand and to obtain more robust evidence about how products might perform in the real world.

We are a dedicated healthcare consulting firm of qualified experts. We at phamax simplify and resolve healthcare market access complexities using a scientific and analytical framework. For more information, email us at info@phamax.ch.

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