Editor’s Focus: Organic is often good for you
It seems there might be a trend away from crude and opportunistic tack-on merger and acquisition deals and toward more deliberate M&A deals that better fit companies' current and future needs, which would be welcome in an era when internal, organic R&D growth isn't what it used to be
If you are a longtime reader of DDNews, you probably remember that a few years back (or maybe “several” is more accurate, but recent-ish all the same) there was a lot of merger and acquisition (M&A) activity going on. I mean, sure, there have been a lot of big deals and a lot of deals in general in the past couple years, too, but it was like the Wild West previously. Or so it felt.
Every day seemed to bring news of some company or another getting ready to gobble up another company. And in many cases, what made the news more notable was that the company slated to get gobbled up many times didn’t want to be acquired—or was potentially interested in being acquired, but not by the company most aggressively pursuing them.
To be honest, it got to the point where in some cases, my writing in the stories about these deals took on a metaphorical tone, comparing them to creepy stalker behavior or toxic romantic relationships. In some cases, the news stories would inevitably have a paragraph somewhere that veered away from news and more toward opinion—something along the lines of, “Is this a good idea? This deal doesn’t seem like a good idea...I dunno...”
While I’m not an expert in the way the pharma and life-sciences market analysts are—because if my job was to pay attention to all the companies and all the patterns, I wouldn’t get the magazine out and I’d likely lose my mind—I do feel like I have a good sense of trends and reasons for them most of the time.
Looking back, it seemed that a lot of Big Pharma companies, or even some below that rank, were really interested in bolstering their pipelines. Products were about to lose patent protections, some therapeutic areas were floundering as others were burgeoning—to be honest, it seemed that many companies weren’t sure how best to secure their futures in a world where drug discovery and development were getting ever more expensive and the public and governments alike were pressing them about drug prices while also demanding cures for everything head to toe, from Alzheimer’s disease to restless leg syndrome. Some of this was very profit-driven and calculating on the part of the companies; some of it was genuine desire to fill market niches and remain relevant and helpful.
There were some players, though, who I don’t really feel were acting in the best of faith at all. Some companies, especially ones that weren’t big names with decades of in-house R&D cultures, seemed to be interested in just snatching up companies in the hopes of finding one or a few market successes and then milking them for as much money as possible. Some of these companies had little or no R&D themselves, and I even hesitated to think of them as pharma/life-sciences companies.
One of the more active players at that time in the “snatch and grab” style of M&As—and one I felt particularly critical of many times even if I didn’t express that in news stories—was Valeant Pharmaceuticals (now calling itself Bausch Health). I mention this because recently on Facebook someone posted a story about Valeant buying some product from a company (or the company itself) and jacking up the price of that product. As often happens in social media, it wasn’t a really recent news story—made obvious to me by the fact the name “Valeant” was used. I went into my occasional “defense of pharma” mode by pointing out this isn’t the usual behavior and most high drug prices are high because of the costs of getting them to market, not because of greed (or at least not with greed as the primary factor).
What I also pointed out was that Valeant was a bit of an outlier—much like Martin Shkreli, who bought up a cheap-to-make, very affordable, very important drug (antiparasitic drug Daraprim) and then drove up the price of it astronomically (56 times its original price). Valeant wasn’t as bad as Shkreli, but nothing about Valeant ever felt organic and natural. Every time they announced a new M&A, it felt like they were patching together a Frankenstein’s monster rather than having an actual plan for the long term that could be nourished and flourish. I haven’t followed them recently because they haven’t really been lighting up the news since becoming Bausch like they did when they were Valeant. Maybe they found a groove and calmed down and have an organic plan now. I don’t know.
But looking at M&A deals now, and also at deals to offload products to other companies, I feel like the trend right now is more organic, more healthy. I feel a lot more like even when a company seems be struggling against generic challenges or trial failures in key areas or whatever, more often than not it seems to be legitimately trying to figure out what it does best and focus more on that.
It’s a trend I think will work better for everyone, from the companies to the shareholders/financers to the patients. We need to see less of M&As that try to graft something on that’s only likely to atrophy or be rejected later, and a lot more of nurturing internal R&D and—when it becomes attractive or necessary to acquire leads and products from outside the company—making sure that products not organically grown in-house will at least be compatible with what is already there.