Focus on the Healthcare Sector
The pharmaceutical and healthcare sector has always needed a constant influx of new medicines and devices to keep it moving. In today’s pharmaceutical industry, companies are finding it difficult to bring new products to market. This will continue to be the case in the absence of changes lab in productivity.
The core problem is the lack of new and innovative products being developed. In 2006, only two big pharmaceutical companies earned more than 10% of their revenues from major recently-developed products (those less than three years old). Today, the industry currently invests twice as much in R&D as it did a decade ago, and it manufactures only two-fifths as much of the new medicines it then produced.
Large companies continue to dominate the market, buying up many of their smaller contemporaries. In the early 2000s, there were a great many smaller businesses in the sector; the result of greater investment in new ideas, spin-outs from larger companies and the products of commercialisation programmes at universities. Furthermore, there has been a recent upsurge in M&A in the pharmaceutical sector. 2005 saw the completion of 2,048 transactions, totalling $152bn. The resulting consolidation saw many smaller companies being acquired, and a decrease in the range of new products being developed.
Many small companies develop a pipeline of products that might be hugely successful if they ever make it to market – but so few ever do. Some companies are therefore revising their strategy due to changes in the market: Phoqus Pharmaceuticals, a client of Emperor’s, streamlined its pipeline to focus on the development of one product, rather than a variety of products simultaneously. This reduces R&D costs and overheads, enabling them to concentrate on getting their product all the way to market.
Consolidation of companies gives birth to larger companies, with potentially bigger communication budgets. Most acquiring companies have to pay greater attention to post-merger integration, as this is vital for the success of an acquisition. Internal, as well as external, communications are essential to ensure integration is successfully deployed and maintained – so that all stakeholders know what's going on and why. Other communication requirements may for instance include merged entities having to implement different strategies for marketing their products into revised geographical areas. Amongst Emperor’s client base are several examples of this consolidation, including instances of our clients making offers to buy each other – the takeover of Theratase by BBI Holdings being one such example (and the subsequent takeover, and de-listing, of BBI by Inverness Medical being another).
Although there are challenges in terms of bringing new products to market, mergers and acquisitions and providing consistent supply to constantly high demand, some argue that the pharmaceutical sector’s relatively low sensitivity to wider stock market movements makes it a comparatively attractive investment proposition in times of economic and financial uncertainty.