The biopharmaceutical company may want to pause before making its next acquisition.Costs are reportedly rising, potential returns falling A report published in late June by accounting and consulting firm Accenture.
However, other growth strategies may be more promising in the coming years, the report noted, which predicts companies will begin to change strategies.
“From shifting trends in partnerships to the new mindset needed to support acquisitions, we are deeply rooted in a time of transformation in the life sciences industry,” the report’s authors wrote.
Mergers and acquisitions have long been the growth strategy of choice for the top 30 biopharmaceutical companies, according to an Accenture report titled “Scientific Innovation for More Sustainable Growth.” In fact, over the past 15 years, acquisitions have delivered 60% of the company’s market assets.
However, several factors threaten the sustainability of the M&A approach, the report said. Acquisition costs, for example, are becoming more expensive due to record premiums for biotech deals. For deals worth more than $500 million, the 2021 acquisition premium is 71%, up from 51% in 2018, Accenture said. The company attributes the growth to the growing influx of venture capital funding into biotech companies.
“According to the biopharma executives we interviewed, creating value from late-stage asset acquisitions is nearly impossible due to record-high deal premiums in 2021,” the authors wrote.
At the same time, biopharmaceutical companies are facing pressure on margins that could jeopardize their ability to pay for acquisitions, the report said.
At the same time, the stock market tends to be dismissive of traditional mergers and acquisitions, according to an Accenture analysis. The company found that traditional trading had a short-term negative impact on stock prices relative to the general market.
To identify trends, Accenture divided the inorganic growth approach into four pathways: Builders, Architects, Ecosystems, and Controllers.
The builder path, or traditional late-stage acquisitions, is the most common, accounting for 36% of deals between 2010 and 2021. This was followed by the architect path, the acquisition of early-stage assets, at 34%.An example cited by Accenture is Sanofi acquires Translate Bio for $3.2 billion.
Accenture expects the company will continue to pursue deals under the architecture path. But that strategy may change. Buyers may seek to use platform technology rather than focus on early-stage assets.Examples include Pfizer’s $300 million deal gives it access to Beam Therapeutics and research into in vivo base editing for rare genetic diseases of the liver, muscle and central nervous systemaccording to Accenture.
The company also sees promise in an ecosystem path that includes access to know-how and capabilities to accelerate innovation or reach customers in new ways. Examples cited by Accenture include analytics, artificial intelligence and new devices.
From 2010 to 2021, ecosystem transactions accounted for 16% of the total, but only 1% of transaction value, according to Accenture. However, the company said the ecosystem deal was one of the biggest to be announced on the eve of the JPMorgan healthcare conference in January 2022: Collaboration between Sanofi and Exscientia, an AI-driven drug discovery company.
Ecosystem deals also provided the biggest short-term rally in stock prices, according to Accenture analysis.
Accenture said controller deals — referring to deals struck for geographic expansion or vertical integration — could also grow, especially as biopharma companies seek growth in China.
Biopharmaceutical companies rely on a combination of four pathways, which varies according to the age and size of the company. Accenture found that smaller, high-growth firms were more likely to seek architect deals.
In wrapping up the report, Accenture recommended a series of actions, focusing primarily on architects and ecosystem deals. These recommendations include combining biotech platforms and capabilities to create value; developing a corporate culture that can accommodate multiple platforms; and creating internal teams to ensure efficient use of resources across therapeutic areas.
“Similar to the venture capital operating model, the team will incubate new science and technology while evaluating and managing a variety of science and technology collaborations that provide expertise, skills, capabilities and relationships,” the report’s authors wrote.
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