Pharma M&A

– Identifying the best deals for your company

M&A’s peaked in 2014. Prior to this, in the late 90’s, the global pharma industry saw huge waves of M&A activity. What challenges lie behind such high numbers of M&A’s? How is this prosperous and how do the Emerging markets play a role in today’s activity?


M&A in the Pharma industry

In recent years, the Pharma and Healthcare industry has gone through several huge waves of M&As. Big corporations have found many mutual advantages in merges and acquisitions, which were estimated at billions of U.S. dollars in total. In 1999 and 2000, Pfizer purchased Warne-Lambert, and Glaxo Wellcome Plc. bought SmithKline Beecham Plc. A quarter century later, M&A’s still have great importance and are seen as highly profitable. 2014 has been a very valuable year in terms of merger and acquisition activity: 2014’s M&A transaction values topped 200 billion USD. This represents almost double the average volume of the past ten years, and if deals hadn’t failed or been canceled, the value could well have reached over 300 billion USD.

If companies are actively looking for a buyer, the sales price will go up to 5 times sales, and normally investment funds agree to these deals. As a result, other companies frequently try to engage in Pharma M&A activity before any public announcement.


Does Size Matter?

Global leaders have been and continue to be participants in Pharma M&A activity, but these deals are not exclusively for large, multi-billion dollar corporations. Smaller and mid-sized Pharma & OTC companies also recorded a transfer volume of 12.5 billion USD in 2012. This shows that merger and acquisitions are also beneficial for smaller- and medium-sized companies and that they are equally capable of focusing on Emerging Markets in order to identify the best and most profitable deals.


Why are M&As so profitable in the Pharma industry?

The top ten Consumer Health and Pharma corporations worldwide controlled an impressive share of 40% of the global pharmaceutical market. A main reason for this concentration lies in the numerous M&As that have taken place.

Short-term strategies that show results after 3-4 years are losing popularity, and long-term strategies are increasingly being targeted. This leads to high M&A activity, as M&A’s help companies manifest and improve their market position through higher sales revenues.

Businesses can choose to specialize in specific business units, allowing them to dispose of sub-units. For instance, this occurred recently when Novartis sold its veterinary medicine segment to Eli Lilly for over 5 billion USD.

Further, due to declining product pipelines partially caused by long drug lifecycles, more and more companies see the potential for company growth in emerging markets and see their future in these markets.

Regardless of the corporate goal, Pharma M&A allows companies to re-shape themselves.


5 reasons to engange in M&A pharma activity

Source: CPC


This trend seems likely to continue, but the attention of Pharma companies is increasingly being steered away from the west and towards Emerging Markets such as Mexico and Brazil, because their potential benefits and profits outweigh those in mature and often home markets.


Challenges of the Pharma industry and drivers of M&A activity

R&D costs & declining product pipelines through commercialization

CC0 Public Domain

CC0 Public Domain


Due to the successful commercialization of large numbers of drugs in the past, the product pipeline of many companies has been emptied and a strong need has thus been created to re-fill these pipelines. This fact, combined with the long and expensive life cycles of drugs, is partially to blame for declining product pipelines, and has further caused research and development costs to skyrocket.

The number of new drugs invented per billion USD of R&D spent has been decreased by half every 9 years for the past several decades. Nowadays, the leading Pharma companies invest 5 billion USD on average before a new drug can be sold.


New technology

Rising R&D costs can also partly be traced back to continual developments in technology and scientific improvements in drug production. Bioinformatics, automation processes and new screening techniques for genomics play a huge part in technological development. Corporations hope these advances will help them expand their new range of products, but R&D expenditure needs to be increased in order to utilize these modern technologies.


The expiration of patents on blockbuster drugs threatens the revenues of Pharma companies. After patents expire, generic drugs are sold for much less, forcing not just the price of the original product to drop drastically, but also leading to a decline in sales volume due to more competition. Simultaneously, governments of western markets are increasingly pressuring Pharma companies to cap or reduce the price of existing name-brand drugs.

Challenges that facilitate M&A's

Source: CPC


Targeting Emerging Markets


Addtional International Sales, Chameleon Pharma Consulting

Source: CPC


These challenges can result in less revenue, a further reason why modern companies are striving to enter Emerging Markets, often by M&A activity. There is a huge potential for company and revenue growth in such markets, and if conducted with enough market knowledge, these expansions can lead to an increase in sales of far more than double the number of sales in the home market.

Targeting Emerging markets is becoming more popular, due to their high current and future market growth rate, the growth of middle classes with disposable incomes and aging populations—all of which contribute to the huge number of potential customers.


What are the benefits of selling and purchasing companies?

All of the challenges faced by the pharma industry lead to an increase in M&A activity. Pharma M&A’s pose an opportunity not only for the purchasing company but often for the selling company as well. Both corporations have the chance to remold themselves and set new core units. As a result, they gain the ability to specialize in certain segments in the hope of re-filling their product pipelines. The purchasing company might increase their sales revenue and reinvest the extra revenue, and the selling company will concentrate their investments and specialize on fewer or smaller units.

In Emerging markets, local companies can benefit from the knowledge and experience of the purchasing company, and the investor can utilize local knowledge and facilitate market entry.
Companies can also benefit from each other’s knowledge and opportunities when they merging, which presents a prosperous opportunity in Emerging Countries.


How we can support you:

We, Chameleon Pharma Consulting, have a team of experts, all of whom have at least 20 years experience and know the Pharma industry–including Consumer Healthcare, OTC, medical device and Cosmetic segments, inside out. Many international clients of different sizes and from different parts of the world trust us and rely on our advice.

We will help you to identify target companies before they publicly announce their business offering. Those companies should be available for 1 to 1,5 times sales.

Further, we are always happy to support our clients with:

  • M&A projects and Due Diligence processes;
  • Identification of a product and company acquisition target;
  • Reviewing business and expansion plans;
  • Evaluation of in- and out-licensing opportunities for Pharma and Consumer Health products in Emerging Markets;
  • Scenario planning during M&A’s and post mergers.


Our team has extensive experience in assisting Pharma companies in all phases of Licensing and M&A strategy development and implementation:

  • Supporting European OTC companies to identify acquisition targets in Mexico, China, Poland, Thailand, Russia, Poland, Brazil, Colombia, etc.
  • Conducting numerous Due Diligence and M&A projects in the European, Latin American & Asian markets.

Chameleon Pharma Consulting