Right ingredients for a successful M&amp

AFactors such as shifting market dynamics from US to Emerging Markets, rising healthcare demand due to ageing population, regulatory and government changes due to economic environment and patent expiration of blockbuster drugs and the failure of RD have led companies to restructure, grow inorganically and contain costs. Rationale behind MA in Pharma There are a number of reasons behind which organizations merge or aquire each other, the most presiding one is accelerating growth. Pharma industry has some unique growth drivers that lead the companies to grow inorganically rather in the conventional way. The key drivers of MA growth in the pharmaceutical industries are: 1. RD Productivity: The pharmaceutical industry is research-intensive industry, with an average RD to sales ratio as high as 18%, compared to 4% for US manufacturing industry overall (Pharmaceutical Researchers and Manufacturers of America, 2011). The RD process is expensive costing $1.3bn in average (Grabowski, 2007) time-consuming (12-15 years) and highly risky in their outcomes. Hence, by joining the research expertise of the two companies, MAs can profoundly improve the research performance of the firms involved. 2. Pipeline growth: An important investing criterion in pharma firms is evaluating company’s drug pipeline. Inspite of the exorbitant RD spend, drug pipelines of companies are quite barren, especially the late?stage pipelines. Hence it is imperative for the Pharma companies to look outside in order to fill their pipelines. 3. Search for Blockbusters: Blockbusters, defined as brands with annual sales in excess of $1 billion, continue to drive growth. Pharma companies constantly search for blockbuster drug molecules such as Eli Lily’s Prozac or Pfizer’s Lipitor to boast their… Right ingredients for a successful MAThere are a number of reasons behind which organizations merge or aquire each other, the most presiding one is accelerating growth. Pharma industry has some unique growth drivers that lead the companies to grow inorganically rather in the conventional way. The key drivers of MA growth in the pharmaceutical industries are: RD Productivity: The pharmaceutical industry is research-intensive industry, with an average RD to sales ratio as high as 18%, compared to 4% for US manufacturing industry overall.The RD process is expensive costing $1.3bn in average time-consuming and highly risky in their outcomes. Hence, by joining the research expertise of the two companies, MAs can profoundly improve the research performance of the firms involved. Pipeline growth: An important investing criterion in pharma firms is evaluating company’s drug pipeline. In spite of the exorbitant RD spend, drug pipelines of companies are quite barren, especially the late
stage pipelines. Hence it is imperative for the Pharma companies to look outside in order to fill their pipelines. Blockbusters, defined as brands with annual sales in excess of $1 billion, continue to drive growth. Pharma companies constantly search for blockbuster drug molecules such as Eli Lily’s Prozac or Pfizer’s Lipitor to boast their top lines. The period for which the patented drug can be masrketed is effectively 4-5 years after which the patent owning company loses its exclusivity to market and sell the drug.