The Pharmaceutical Industry – M&A

Historically pharmaceutical companies have posted double digit growth numbers and made many shareholders green. However, this decade has been tough for the drug makers.

The main reason behind the recent lackluster performance of the drug companies has been decrease in R&D productivity. R&D spending has increased many folds due to more than ever stress on safety. Clinical end-points are stricter necessitating larger and longer clinical trials. This in effect reduces the patent window when these companies can maximize their profits. To make matters worse not many innovative drugs are in the pipeline and those that are lack the market size.

Industry’s solution to deal with its dwindling organic growth has been merging within the industry and forming strategic alliances with smaller sized biotech companies that can take on the role of innovation and in the process employ big pharma’s sale/marketing force in pushing the drug in the market.

For instance, recently Eli Lilly and Company (LLY) and SGX Pharmaceuticals, Inc. (SGXP) announced a merger agreement. This merger will allow LLY to employ SGXP’s scientific resources in order to bolster its cancer fighting pipeline and allow SGXP, a San Diego based small biotechnology company, to realize its full potential with the help of LLY’s expertise in advancing drugs. Such synergic deals create great value for both companies. However, such deals often cause managerial complexities due to difference in culture between small entrepreneurial biotech firms and large too big to innovate pharmaceutical companies.

Even though there is no strong evidence that economies of scale can be achieved by pharmaceutical companies through M&A, it still remains a rewarding solution for the big players to enhance their competitive edge and maintain growth figures.

A look into the future of healthcare industry - Molecular Diagnostics

Molecular diagnostics is one of the fastest growing segments of the healthcare industry. It entails in-vitro analysis of blood, urine and other specimens to understand the molecular-level changes behind progression of medical conditions.

By screening for underlying physiological changes, the science has the potential to provide early diagnosis and optimized treatment. Firstly, molecular diagnostics can reduce healthcare wastage caused by misdiagnosis and inefficient medical management. For example, most of the blockbuster drugs work well for only a fraction of the general population. With use of pharmacogenetics, doctors can pin down the right drug, dose and time needed for effective treatment. Moreover, with increasingly educated and affluent demographics, personalized medical care will be in demand.

Currently, very few molecular diagnostics tests have been approved by the FDA for clinical use. And most of these target infectious diseases and cancerous conditions. As science grows more biological pathways are discovered and relationship between genes and pathology is understood, the area of molecular diagnostics will grow.

Today, the pharmaceutical sector is facing the toughest time. Many blockbuster drugs go off-patent soon, there aren’t many in the pipeline and those that are face increased scrutiny from the FDA. Safety being the biggest issue, most of the failed drugs can be introduced in the market with the help of molecular diagnostics. These tests can recognize the fraction of people who stand to gain the most from these previously failed blockbuster drugs with minimal or no side-effects.

Patient-privacy issues pose a big hurdle for this growing segment. There is concern regarding how the insurance companies and hospitals will use the genetic information. People with pre-disposition to certain diseases might be denied insurance. Also, with hospitals competing for the top-spot in the ranking tables might deny treating some of these patients. For molecular diagnostics to reach its full potential these issues must be tackled in coming years.