Common Investment Transactions in the Current BioPharma Environment

Since the BioPharma industry has been going through a significant transformation, the investment environment has been fairly dynamic and the following five different transactions are fairly noticeable. 

  • Mergers and Acquisitions (M&A): Over the last couple of decades, there has been significant consolidation in the BioPharma industry driven by R&D productivity, regulatory, pricing, and competitive challenges. To deal with these challenges and to get back on the growth trajectory, established BioPharma companies have been actively engaged in M&A activity. The synergies gained from M&A transactions range from portfolio strengthening to cost structure effectiveness to acquiring new competencies (e.g., research, regulatory, or commercial expertise). Especially, larger and traditionally cash rich BioPharma companies are aggressively acquiring companies with attractive products or investing into early stage companies. Most recent notable M&A transactions include Pfizer acquiring Wyeth and Merck acquiring Schering-Plough. Both companies have had to undertake these transactions to strengthen their portfolios and to areas attain sustainable growth. 
  • Partnerships: Typical partnerships among BioPharma companies are structured around co-development or co-commercialization opportunities. These partnerships allow companies to not only exploit their competencies but also share risk. Due to enormous development and commercialization investment requirements, often quid for pro deals are also seen in this area. For example, Amgen has recently secured approval for Prolia®, which is indicated for treating osteoporosis in women after menopause. Though Amgen is a large biotech company, still it has partnered with GSK to promote Prolia® as GSK has a well established commercial infrastructure and competency to effectively promote products to larger primary care audiences. Similarly, Vertex Pharmaceuticals has secured approval for its Hepatitis C drug Incivek® and partnered with Merck to promote it. These partnerships are often necessary to gain competitive advantage and to maximize the product potential.
  • Hands-On and Hands-Off Investments into Early Stage Companies: To bolster pipelines and in pursuit of attractive opportunities, most BioPharma companies with financial strength are pursuing either hands-on or hands-off investment strategies into early stage companies with attractive products and technologies. On the flip side, these early stage companies must proactively establish strategic relationships with established companies with development, regulatory, and commercial competencies to undertake global trials, navigate through the regulatory environments, and gain access to capital. Today, all Top 20 global BioPharma companies have been actively engaged in working with early stage companies on these hands-off and hands-on type investment deals.
    • Hands-off Investments: These investments involve BioPharma companies investing into early stage research-based companies and supporting them with required competencies (development and/or regulatory) and give them full autonomy to manage their business. If the product is successful in gaining regulatory approval then the company will take a much more active role on the commercialization front. There are several situations in which the BioPharma companies have acquired these early stage companies especially after the products became commercially successful. 
    • Hands-on Investments: These investments involve BioPharma companies investing into early stage research-based companies with attractive compounds and technology platforms and collaborating with them on all areas of discovery, development, and commercialization. These early stage companies prefer this approach as it allows them to test numerous applications of their technologies by leveraging the infrastructure of established BioPharma companies with expertise in targeted areas. Most BioPharma companies taking an active role tend to retain the full rights to commercialize the approved products as early stage companies may not have the required competencies or resources to maximize the product investment return. 
  • Independent BioPharma Companies: Due to the complexity involved in creating successful products and enormous capital requirements, it’s often a daunting challenge for companies to raise sufficient capital to survive and thrive. Due to the healthy nature of BioPharma investment environment in the U.S., a number of companies with attractive technologies or products under development have successfully attracted sufficient capital in the public markets to stay independent and to oversee drug discovery, development and commercialization activities. These companies occasionally establish strategic relationships with other companies to co-develop products and may tap into capital markets when additional capital is required. These companies tend to attract venture capital investments to get things off the ground and once they achieve proof-of-concept for their product then it gets relatively easier to tap into public markets.
  • Pooled Investments: In rare situations, companies pool their competencies to develop successful products. This allows two companies with complementary technologies and products to exploit the synergies in order to create value for shareholders. For example, Pfizer and GSK have collaborated on their HIV assets to create a company called “ViiV Healthcare” which is dedicated to maximizing the investments into their intellectual property and products.

The strategic path that a company takes depends on multitude of factors which are often difficult to predict with certainty as the information may not be publicly available. Investors have to understand the type of opportunity each company is pursuing and the type of transaction it explores and executes in order to gauge the likely outcomes through market research and competitive intelligence which is often a challenging task.

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