Reed Smith Report: 85.5% of U.S. Life Sciences Companies Plan Cross-Border Acquisitions Next Year

Although mergers and acquisitions (M&A) in the life sciences sector (pharmaceuticals, biotechnology, and healthcare) have reached new heights, enthusiasm for such deals among these companies appears boundless. According to a survey of 100 life sciences executives conducted by the global law firm Reed Smith, 94% of U.S. life sciences companies plan to pursue acquisitions in the coming year, with 91% of those transactions expected to be cross-border.

The report, titled “Lifeline: M&A in Life Sciences Companies and the Rise of Personalized Medicine,” explores the key drivers behind the booming landscape of cross-border life sciences deals, the challenges involved in executing these transactions, and how advances in personalized medicine will reshape the healthcare industry.

M&A Activities on the Rise

In the first half of 2015, transaction volume in the life sciences sector reached $164.3 billion, representing a year-on-year increase of nearly 53%. Starting in the second half of 2015, new deal announcements continued to emerge frequently, including Israeli company Teva Pharmaceutical’s $40.5 billion acquisition of the generic drug manufacturing division of U.S.-headquartered Allergan, which stands as the largest deal announced to date in 2015. A significant share of U.S. transaction value this year has been concentrated in this sector, with 82 deals announced in the first half alone, totaling over $112 billion in market value.

For many life sciences companies today, acquisitions have become the preferred strategy to meet investors’ growth expectations. Rather than investing time and capital in high-risk internal development, it is often more advantageous to acquire a company that already has breakthrough new drugs in its pipeline. As the CEO of a European pharmaceutical company stated, “The failure rate in early-stage new drug R&D is extremely high, and such failures are often recognized only after substantial resources have been consumed. In light of this, acquiring companies with late-stage R&D programs is a prudent decision.”

Most life sciences companies prefer cross-border acquisitions as a means to enter growing overseas markets—especially now, as growth in their existing markets is slowing.

New Vision

In addition to determining which regions will be the priority targets for M&A activities, life sciences companies must also decide what type of companies to acquire. Nearly three-quarters (74%) of the surveyed companies expressed interest in acquiring firms with early-stage product R&D potential, while a similar proportion (69%) targeted companies active in late-stage R&D. Seventy percent of respondents showed strong acquisition interest in the field of personalized medicine.

The data also indicates that many pharmaceutical companies are eager to diversify their development by entering new business areas.More than half of the companies (58%) stated in this research report that they are seeking to acquire firms outside their current areas of expertise. Meanwhile, fewer than one-third (29%) of respondents are focusing on acquiring companies within their existing business scope.

Brian Miner of Reed Smith pinpointed the reason behind this phenomenon: “Acquiring specialized expertise in another field is clearly a faster, cheaper, and lower-risk approach than developing it in-house from scratch.”

Over the next year, U.S. companies are planning to increase investment in marketing/distribution (29% of respondents), as well as clinical trials (21%) and late-stage R&D (18%).In the survey, respondents identified changes in healthcare policy/reimbursement (29%) and high drug development costs (24%) as the greatest challenges to achieving company growth.

The Growing Role of Personalized Medicine in the Strategies of Life Sciences Companies

Another trend identified in the survey is the growing strategic importance of personalized medicine within life sciences companies. More than two-thirds (70%) of respondents were able to name a company specializing in a specific area of personalized medicine and indicated that they would increasingly seek to acquire such companies.

In the survey, regarding the drivers that will propel the development of personalized medicine over the next two years,73% of respondents cited “broader application of data analysis in clinical trials”; 69% identified “novel delivery systems (e.g., 3D printing, online pharmacies)”; 57% cited “new research in pharmacogenomics”; 54% pointed to “regulatory incentives/guidance”; and 52% highlighted “the auxiliary application of wearable technology in medical diagnostics.”

In the contemporary era, medical practitioners are increasingly embracing the concept of “administering the right drug to the right patient at the right time,” and manufacturers of such therapies are being increasingly rewarded by the market. The “one-size-fits-all” approach to prescription is now obsolete. Personalized medicine typically determines the appropriate treatment regimen for patients based on their genetic makeup and other predictive factors. As the CEO of a major U.S. pharmaceutical company stated, “Modern medical practice emphasizes gathering evidence to guide interventions and improve patient outcomes; technology is what makes this possible.”

In addition to maintaining a sustained focus on the development of applied pharmaceuticals, surveyed companies also recognize that personalized medicines, despite serving a much smaller patient population, can deliver higher returns. Said Carol Loepere, Partner at Reed Smith’s Washington, D.C. office and Chair of the firm’s Life Sciences & Health Industry Group,“The future of medicine lies in tailoring treatments to individual patients and administering the right dose at the right time.”

Why Life Sciences Companies Advocate for Personalized Medicine

Personalized medicine not only delivers better therapeutic outcomes for many patients but also significantly boosts the performance of manufacturers. More than one-quarter (26%) of surveyed life sciences companies have identified this business opportunity and aim to generate higher profits from targeted therapies.

Furthermore, 25% of respondents indicated that personalized medicine can improve patient outcomes, which would encourage consumers to pay higher prices for medications; on the other hand, the relatively small number of non-responders in personalized medical treatments can enhance their cost-effectiveness ratio, a factor considered by 24% of respondents.

Personalized medicine is still in its early stages of development today, but it is advancing rapidly. According to the UK-based research firm Diaceutics, targeted therapies currently account for 19% of the market, more than triple the 6% share recorded in 2010. Pharmaceutical companies such as Roche, Johnson & Johnson, and Novartis are leaders in this field.

Barriers to the Development of Personalized Medicine

To date, regulatory frameworks have posed the greatest challenge to the further development of personalized medicine. One-third (34%) of surveyed life sciences companies cited “lack of regulatory guidance” as their primary difficulty, nearly double the proportion citing “disease/patient stratification” (18%), which ranked second.

There is no doubt that personalized medicine has made certain progress in some countries, but the regulatory framework governing drug development has thus far failed to keep pace with the advancement of personalized medicine. The U.S. FDA has performed best in this regard: over the past three years, the number of new drugs approved by the agency that are associated with specific biomarkers has surged from just over 20 to more than 80. However, progress in personalized medicine has been relatively slower in other markets.

Compiled by Chen Xin
Editor: Mo Renying