Annual report highlights global consolidation

The new Pharma Insights report from PricewaterhouseCoopers (PWC) has pinpointed continued global consolidation as having the greatest effect on the industry.

It also points to a lack of r&d productivity, patent expiries, generic competition and high-profile product recalls, all of which it believes to be driving the current level of mergers and acquisition (m&a) activity in the sector.

The report, published annually by PWC Corporate Finance, predicts the following impact of these pressures:

• further big pharma companies divesting non-core divisions such as OTC;

• continuing consolidation in the Asia Pacific region;

• the creation, by consolidation, of new 'big biotech' companies;

• one or two deals furthering mid-tier consolidation in the European pharmaceutical sector.

The Asia Pacific prediction builds on figures from 2004, which revealed that, for the first time, the number of deals in Asia Pacific (278) exceeded those in North America (252). The value of the Asia Pacific deals was also materially larger than in previous years, dominated by the US$7.9bn merger of Yamanouchi and Fujisawa in Japan.

In contrast to the pharma sector, the biotech sector is going through a period of relative calm from an m&a perspective. However, this is in part due to the number of biotech companies that have set their sights on an Initial Public Offering (IPO), so as IPO aspirations fail and cash piles start to dry up, the sector's m&a imperative is expected to strengthen.

The report also states that most of the significant recent acquisitions in the sector have been led by emerging 'big biotech' companies, rather than pharma companies, and that today's investors tend to look for companies with diversified product portfolios and established revenue streams.

'It is positive to see a good flow of fundraising in the sector, with 2004 witnessing the highest level of funds raised since 2000,' said Neal Ransome, European pharmaceutical sector leader, PWC. 'However, the IPO windows of the world will not remain open indefinitely and as they start to close we expect to see an increasing number of biotech companies become available for acquisition.'