19.11.2012 - Big Pharma has spent less money on M&A this year than in 2011, a new report from Deloitte Recap reveals.
Last year, only US$245bn were spent on acquisitions in the life sciences field, according to the analysts from Deloitte Recap LLC. And this year might even get worse: Only US$142bn were invested in this year’s first nine months. The stream of investments has become a feeble trickle – it’s likely that 2012 will end with another drop in the already low M&A sums. Together with similarly shrinking venture capital investments and reduced milestone payments in licensing deals, this adds up to bleak prospects.
Experts hadn’t expected this development. On the contrary, in the wake of the economic crisis, analysts assumed that the number of deals would rise, even though the single acquisition would cost less. But just the opposite says Deloitte Recap's senior biotech analyst Chris Dokomajilar: The industry would be catching its breath, working through the consolidation period while selectively picking off companies that can be easily bagged and bolted on to a big organisation.
Industry is getting increasingly adverse against taking risks. The kind of biotech looking most appealing to buyers at the moment would be a developer with a Phase II asset that's cleared the proof-of-concept hurdle, says Dokomajilar, where the buyer is looking at a significantly de-risked approach to late-stage trial work. This holds true, if you take a look at the five top dealmakers in licensing and joint venture, compiled by FierceBiotech: While leader Roche/Genentech (total deal volume US$1.37bn) closed deals for products in discovery stage or preclinical testing, runners up Abbott (total deal volume: US$1.37bn) and Merck & Co. (total deal volume: US$1.3bn) focused on products in Phase II and Phase III respectively.
According to Dokomajilar, there are some indicators that the situation might improve in the future: "The past few years brought a tremendous amount of liquidity," Dokomajilar told FierceBiotech, counting US$215b in "committed" dollars, upfront and equity payments offering investors a chance to cash out. Many of those investor groups are required to reinvest a portion of their cash in this industry. This means that a lot of that money should be flowing back in. That, however, still hasn’t happened yet.
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