Every January I enjoy going to the JPMorgan Annual Healthcare Conference (the former Hambrecht & Quist Conference) in San Francisco because it provides a good way to measure the pulse of our industry at the beginning of each year. There is always so much going on, and there is always 'the buzz' - through official announcements and presentations - but, more importantly, through hearsay, gossip and rumour. There are many off-site meetings between companies and investors over cups of coffee and meals. So although the meeting is investor focused, it also becomes a means for companies to meet and talk. To me it is the essence of deal making.
So what was the buzz this year? Well, M&A continues to dominate the field, particularly with biotechs as the target of acquisition by either larger global pharma companies, mid-sized companies or mature biotechs. The consolidation of biotech - the concept that everyone forecasted five years ago - is happening, and it looks as if it will continue to happen in 2006. Of course, five years ago people thought, or, probably more accurately, hoped that consolidation might be a way of rescuing distressed biotechs. This prediction was wrong: quite the opposite, for it turns out to be a way of realising value for shareholders of those companies that have survived and built assets of value to the pharmaceutical industry.
"The consolidation of biotech - the concept that everyone forecasted five years ago - is happening, and it looks as if it will continue to happen in 2006." These assets are not only any type of product in late-stage development, but also those therapeutically relevant biologics (in particular antibody-based products) in earlier stage development. Because of this, and because many large pharmas feel they have lost out on such biologically based therapeutic opportunities, they are now buying companies with the capability of producing these products, even though they are in early development. The purpose is to ring-fence certain key strategically important areas. Furthermore, consolidation is also happening where companies need to strengthen and protect their own key areas of therapeutic specialisation. Thus, companies with key assets in a specific therapy area are likely to be targets for acquisition.
Speciality pharma is an area that has emerged with gusto in the past few years. By this we usually mean a specialised pharma company with a focus on niche patient groups and with annual peak sales of individual products below US$200 M. For example, many drug delivery companies have started to morph into speciality pharma companies by backing their own drugs. These speciality companies have themselves, in turn, become targets of (usually) larger speciality pharma companies. As a result of this, the emergence of speciality pharma companies with positive cash flows and specialist sales forces is underway. How many of them will achieve this status and how long they can remain independent is a key question for 2006.
Fintan Walton
Chief Executive Officer
PharmaVentures Ltd