Pharmaceuticals & Biotechnology

As spending in healthcare has consistently grown, so has the Pharmaceuticals and Biotechnology sector. Improved technology and innovation in several segments has made more applications possible that both diversify and augment its revenue base. Further stabilizing the sector’s demand is the aging population of the U.S. and an increased government involvement in healthcare, which will increase the demand and access to this sector’s products. Operators have recently sought out expansion through acquisition, but the recent wave of patent expirations are leveling the playing field. More revenues are spreading to generic drug makers, and new entrants are able to get a foothold in the market with newly launched products.

 

Value of Closed Domestic M&A Transactions ($mm)

 

Sector Performance vs. National GDP

The recent spate of patent expirations is expected to only temporarily impact this sector’s growth. However, potential healthcare policy changes that decrease patents’ terms are adding ambiguity to this prognosis. New research and development (R&D) efforts may consequently shift focus to drugs that have a larger pay-off for their investment, such as so-called “orphan” drugs, or more specifically tailored drugs (through initiatives such as the Therapeutic Discovery Project Credit). Operators may also focus on drugs that are provably more effective than alternatives, enabling them to qualify for favorable reimbursement schemes from federal government programs like Medicare and Medicaid. Sustained R&D efforts, broadening product offerings, and capitalizing on opportunities in emerging markets are expected to continue motivating industry consolidation through M&A activity.

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