Deal-making will offset drug development costs in 2016, says analyst

According to a recent report by GBI Research​, pharmaceutical deals will be crucial to offsetting the $2.5bn cost of developing a novel drug in 2016.

“Pharmaceutical and biotechnology companies are facing challenges due to increased R&D expenditure, patent expirations, depleted pipelines, the struggling global economy, and tighter FDA regulations, which have forced companies to change their business models​,” Priyatham Salimadugu, an analyst for GBI Research​, told OutsourcingPharma.com.

In order to overcome these challenges, companies are considering various options – deal-making being one option that helps boost revenues over a short period of time. These deal types include mergers, acquisitions, asset transactions, licensing agreements, and partnerships.

“Deal-making can help pharma and biotech companies enhance their research and regulatory approaches, and also aid portfolio expansion and diversification, geographic expansion, entry into niche markets, commercialization, and sales​,” explained Salimadugu.

Deal-making also provides smaller companies the opportunity to leverage the strengths of larger industry leaders.

“On the other hand, key players keen to secure novel and promising molecules are willing to co-operate with small players to expand their portfolios and reduce R&D risks​,” added Salimadugu.

Trends​

In 2016, GBI Research expects an increase in the number of deals with a focus on strategic alliances, as they involve less investment and risk than M&As.

Specifically, oncology and infectious diseases have been key therapy areas of focus for deal-making over the past five years, and GBI expects to see a similar trend in the future. (From 2010 to 2015, deals in these markets accounted for nearly 50% of all the deals made.)

“Pharmaceutical companies are offloading unimportant departments, and acquiring departments with significant commercial importance in the market. The recent asset transaction in which Novartis exchanged its vaccines unit for GlaxoSmithKline’s oncology portfolio emphasizes the commercial importance of oncology products in the current market​,” added Salimadugu.

Additionally, the Asia-Pacific area is expected to become a lucrative market in the near future, due to a large untapped population and an increasing disease burden.

 “Many companies are developing new R&D and manufacturing facilities in emerging markets by undertaking deals​,” said Salimadugu. “The benefits of this strategy are that costs of both R&D and manufacturing in developing countries are often lower, and building facilities and creating jobs in emerging countries – often in partnership with local governments – can significantly ease market entry​.”