Last year was a down year for mergers and acquisitions (M&As) because of the pandemic, but biopharma deal-making is once again on the rise, evidenced by Gilead Sciences finalizing its purchase of Immunomedics. Gilead is one of many global biopharmaceutical companies hoping to find footing in the United States for two reasons: Biotech innovation has skyrocketed and U.S. tax penalties have been mitigated. Now is the time for biopharma companies to embrace M&As to prepare for future growth.1
The uptick in M&As after a slow year may seem surprising, but it’s not a new trend. This activity has climbed since the 2012 patent cliffs, which forced big pharma to shorten research and development timelines2 to get therapies to market more quickly. Additionally, biopharmaceutical companies created business strategies to sell their companies by engaging in open innovation strategies. For example, small biotech would focus on one therapy, seek a big pharma partner, and then get acquired by the big pharma partner once it hit a certain stage in development (usually the lesser-risk stages).
Over the past decade, M&As have triggered crucial R&D advancements for biopharma companies across the globe, but their success requires specific strategies. Without the right merger-and-acquisition plan in place, companies risk losing efficiencies and more. Below, I’ll address some strategies that biopharma companies can use to successfully prepare for potential deals amid the M&As momentum of 2021.
Common M&A challenges
The M&A process comes with its own set of hurdles. One obstacle arises when the seller is unprepared; the other happens when smaller companies merge with bigger companies and face stark cultural differences.
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First, many sellers do not realize just how many documents they need to prepare for a buyer to attach value to their company and assess the risk of purchasing the company. This includes understanding who has stakes in the intellectual property that the big pharma company is interested in purchasing. These can turn into deal-breakers if the risk associated with the stakeholders is too high. After all, buyers are very interested in the quality of the seller’s IP, and proper preparation will focus on whether the seller has adequately protected its IP, understands its trademarks and copyright products, and has preserved its trade secrets. If the seller neglects these pieces or is involved in litigation over them, the M&A could fail.
Second, the integration of the purchased company into the buyer’s company is a large undertaking. It’s even more intense when the M&A involves a big publicly-traded company purchasing a smaller private company that is not used to publicly traded corporate culture. At this point, smaller companies have to learn the formal and informal knowledge of the IP between the buyer and the seller, adjust to changes in influence over business decisions, and figure out how key relationships shift. These changes must happen without jeopardizing important connections or losing knowledge.
My research has illuminated important insights about mergers and acquisitions that can help companies address these challenges. M&A is considered an open innovation strategy because a firm goes outside itself to acquire a new capability with an acquisition; therefore, evidence supported sharing risks or uncovering associated risks. These transactions are risky because if the buying firm does not realize the value of the acquisition, there is a high sunk cost for all parties involved. Also, from a consulting perspective, smaller firms do not realize the resources and time required by M&As to understand the transition period. This usually detracts from their primary business activities.
Source: Pharmexec
