Bristol Myers Squibb Analysis
An avenue that Bristol Myers Squibb can and may be forced to consider as a remedy for its pipeline problems is a Merger & Acquisition strategy. With the economic downturn in full force the pharmaceutical industry stands out as an exception to the wait-and see mood of the markets. Mergers and Acquisitions in pharmaceuticals and biotechnology sector have actually sped up as companies try to survive in a market that demands high returns to offset skyrocketing R&D expenses and lost revenues as high revenue drugs come off of patent.
In addition to soaring R&D costs, pharmaceuticals are facing unprecedented competition, and the need to come up with new products to fuel their pipelines in greater than ever. Pharmaceuticals are also coming to the realization that the products they launch tomorrow will not come from internal research any longer, but more likely will come from the biotechnology sector. Consequently, M&A activity is increasing as Big Pharma attempts to secure intellectual capital with the excess cash holdings from their balance sheets. Mergers between biotech and pharmaceuticals has intensified as a result of the scarcity of venture capital during these recessionary times, as biotech’s are being forced to turn to Pharmaceuticals to sustain the cash flow needed to continue their R&D projects. At the same time a new wave of Pharmaceutical-Pharmaceutical M&A appears to be upon the sector as firms look for a quicker way to secure products and the revenue streams they generate.
Globally, there were 374 M&A deals announced in the health care sector in 2002, more than 80% in the biotech and pharmaceutical sub-sector, which represented 12% uplift on the number of deals announced in the previous year. Included amongst these deals was Pfizer's proposed $60 billion combination with Pharmacia, perhaps signifying the return of the mega merger trend which dominated the industry in the late 90’s.
The key drivers behind M&A in the
pharmaceutical sector were as strong as ever in 2002; big pharma companies need to fill their R&D pipelines and replace drugs coming off-patent, and biotech companies need access to cash to develop their products and bring them to market.
Pfizer's combination with Pharmacia represents the first mega-deal in the sector since Glaxo Wellcome's merger with SmithKline Beecham in 2000, and is the sectors third largest ever deal. As with many of the smaller deals in 2002, access to new products is a major factor behind the deal. In the bull market many companies made acquisitions designed to give them access to the wide array of technology platforms being developed by biotech companies. In these more difficult times the product is once again king, and this is reflected in the top ten deals. Of the eight acquisitions made by corporate rather than private equity-backed acquirers, no less than seven had a product-based rationale .
M&A can be driven not only by ambition, but also by necessity, and strategically the drivers for M&A in the pharmaceutical and biotechnology sectors remain as compelling as ever. Furthermore, with the mega [next page]