The past several months have seen a flurry of dealmaking in pharma and biotech. Pfizer, having been rebuffed by AstraZeneca, bought a manufacturer of biosimilars, increasing speculation that the company is planning to split itself in two. Shire, similarly stung by its failed attempt to buy AbbVie, is buying NPS pharmaceuticals. A very public drama also played out as Allergan staved off a buyout by Valeant and eventually sold itself to Actavis–itself a very aggressive dealmaker.
Such deals are among the biggest managers make. A successful acquisition or sale can redefine a company; a failed bid—or, worse, a bad acquisition—can haunt a company for years. Acquisitions can be made to promote growth or to prevent loss of market share. In the pharmaceutical industry, acquisitions are typically as much about acquiring a company’s projects as anything else. These companies are trying to remake their R&D portfolios—specifically they need to expand drug pipelines to drive future growth.
Pipeline expansion can look like a good reason to buy another company. It’s certainly quicker than developing a new drug from the ground up. But what often looks attractive at the 35.000-foot level can become far less convincing with closer scrutiny.
Fortunately, there are ways to anticipate the value of a potential deal. In fact, the tools and processes already established by R&D portfolio management can be used to assess the value of the combined companies, and help managers decide whether a deal is worth pursuing.