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Unless something changes, the next decade looks grim for big pharma.
Research and development productivity has slipped and most top-selling products will come off patent. Cost-cutting can only do so much to preserve profits. What the drug manufacturers really need are new products to patch the potholes in their revenue flows. One way to do so is to buy smaller firms that have drugs that are already approved or in the late stages of development.
Some companies have already begun their shopping sprees - there were 995 deals in the pharma/healthcare sector in the first half of 2007 worth $140bn, according to PwC.
The credit crunch has driven off many private equity buyers, but the 10 or so largest pharma companies have enough cash on hand for the right purchase. Potential targets include US-based Sepracor, the UK's Shire Pharmaceuticals and two Scandinavian firms, Lundbeck and Orion. Sepracor has little by way of late-stage research, but Lunesta, its solid-selling sleep aid, will probably stay under patent until 2014. A company with a large primary care sales force could sell Lunesta with little additional cost.
Shire has no controlling shareholder and a strong pipeline of drugs aimed at specialist doctors. Its stable includes Vyvanse, an attention-deficit hyperactivity disorder drug under patent until 2024. But synergies may be hard to realise given the small size of Shire's targeted sales force and R&D department. Lundbeck, a Danish company specialising in central nervous system disorders, is run by a foundation that has said it is not for sale. But its top drug, the antidepressant Cipralex (Lexapro in the US), starts to go off patent in 2012 and the company needs a partner. Management changes at Finland's Orion may make it more amenable to a deal.
None of these potential deals will solve big pharma's problems, but they might help staunch the bleeding.
Lex at the FT
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