Cheap money leads to pharma M&A

one dollaKEY TAKEAWAY: GlaxoSmithKline’s chief executive has warned that cheap money has increased the risk of companies making “poor choices” in mergers and acquisitions and questioned the “stretched” valuations of recent pharmaceuticals deals.  More than $460bn of deals have been struck across the pharma and biotech sectors since the start of last year — the busiest period of M&A on record.  So what effect is this going to have on DTC marketing and drug marketing in general?  Cuts and more cuts.

An $8.4bn takeover of Synageva Biopharma by Alexion, a rival US rare disease drugmaker, last week, involved a premium of 124 per cent on the target’s share price a week earlier. This was the fourth highest premium on record for deals over $5bn, according to Dealogic. Without singling out specific deals, Sir Andrew said: “When interest rates are essentially zero it is inevitable that you are going to see a discipline reduction in M&A . . . and therefore the probability of people making poor choices must have gone up.”

9c948a817fbba92111d4696d2d080e72

Right now there are two strategies that are being used by pharma to save themselves.  The first is setting drug prices exceptionally high, the second is to buy small startups even if there is a hint their product might succeed.

High drug prices are working as more than a half-million U.S. patients had medication costs in excess of $50,000 in 2014, an increase of 63 percent from the prior year, as doctors prescribed more expensive specialty drugs for diseases such as cancer and hepatitis C, according to an Express Scripts report released on Wednesday.

Top Thereapy Classes

Of the estimated 575,000 Americans who used at least $50,000 in prescription medicines last year, about 139,000 used at least $100,000 worth of medication, nearly triple the 47,000 who hit that mark in 2013, the report said.

What about the M&A? Low interest rates mean cheap money and it’s often better, in some executives’ minds, to cut R&D and purchase promising startups even though there is a high likelihood that their drugs could fail. In fact here in the Cambridge area it’s become en vogue to develop a new start up, recruit some industry veterans and then laugh all the way to the bank when they are bough out and get platinum parachutes.

Cut’s to DTC are coming…

As Yogi Berra said “You’ve got to be very careful if you don’t know where you’re going, because you might not get there”.  The balance sheet reigns and you can bet that pharma marketers are going to have to scrape and fight for every dollar and then prove that it was a smart investment.  This means more time trying to get money and justify the expense than actually thinking about the best way to spend it.