 "US specialty pharma firms to change their M&A strategies: Moody's")
US specialty pharmaceutical industry is expected to witness the start of merger and acquisitions activity as companies look to augment their portfolio with products targeted at unmet medical needs. “Despite the ongoing challenges weighing on the US specialty pharmaceutical sector, companies will steadily resume M&A with a more refined focus,” said Moody’s Investors Service. According to the ratings agency, it expects acquisitive specialty companies to increase their focus on products with unmet medical need, companies with pipeline drugs and those providing geographic expansion.
“Operating challenges, dented equity valuations, and reduced access to the credit markets are making it more difficult for specialty pharmaceutical companies to continue to make large acquisitions,” said Moody’s in a new report entitled, ‘US pharmaceuticals - specialty pharma: After turmoil, M&A will steadily resume but with a shift in focus’. As per the report, the slowdown in acquisitions, along with the scrutiny on aggressive price increases, will force many specialty pharmaceutical companies to shift their growth strategies.
Michael Levesque, senior vice president, Moody’s, commented, “In the specialty pharmaceutical space, we expect companies will be moving away from acquisitions that rely on price increases or substantial cost reductions to drive value. To restore investor confidence, companies will seek products that have sustainable volume growth, driving more long-term value through innovative product development focusing on areas of unmet medical need and using less aggressive capital structures.”
Compared to large, traditional, R&D-based pharmaceutical companies, specialty pharmaceutical companies are smaller companies with more limited breadth. In recent years, specialty pharmaceutical companies have typically relied on acquisitions for growth, rather than heavy investment in research and development (R&D). In some cases, acquisitions were followed by large price increases.
Moody’s noted that within the sector, companies like Valeant Pharmaceuticals International, Inc and Concordia Healthcare - both of which more aggressively pursued some combination of rapid acquisitions, high drug price increases and high financial leverage - now face the biggest challenges.
Additionally, the report noted that the pace of the shift in business strategies would differ across the sector depending on factors including financial leverage. Some, like Valeant, will not be making acquisitions for the foreseeable future, according to Moody's.
“Shifts have execution risks, particularly as companies deal with the challenges at hand, including lower prices on acquired products and government investigations. But, for the time being, there are quite a few companies - namely Valeant, Endo and Concordia - that are in deleveraging mode, which will give them time to reassess their strategies and long-range plans,” added Levesque.
“Operating challenges, dented equity valuations, and reduced access to the credit markets are making it more difficult for specialty pharmaceutical companies to continue to make large acquisitions,” said Moody’s in a new report entitled, ‘US pharmaceuticals - specialty pharma: After turmoil, M&A will steadily resume but with a shift in focus’. As per the report, the slowdown in acquisitions, along with the scrutiny on aggressive price increases, will force many specialty pharmaceutical companies to shift their growth strategies.
Michael Levesque, senior vice president, Moody’s, commented, “In the specialty pharmaceutical space, we expect companies will be moving away from acquisitions that rely on price increases or substantial cost reductions to drive value. To restore investor confidence, companies will seek products that have sustainable volume growth, driving more long-term value through innovative product development focusing on areas of unmet medical need and using less aggressive capital structures.”
Compared to large, traditional, R&D-based pharmaceutical companies, specialty pharmaceutical companies are smaller companies with more limited breadth. In recent years, specialty pharmaceutical companies have typically relied on acquisitions for growth, rather than heavy investment in research and development (R&D). In some cases, acquisitions were followed by large price increases.
Moody’s noted that within the sector, companies like Valeant Pharmaceuticals International, Inc and Concordia Healthcare - both of which more aggressively pursued some combination of rapid acquisitions, high drug price increases and high financial leverage - now face the biggest challenges.
Additionally, the report noted that the pace of the shift in business strategies would differ across the sector depending on factors including financial leverage. Some, like Valeant, will not be making acquisitions for the foreseeable future, according to Moody's.
“Shifts have execution risks, particularly as companies deal with the challenges at hand, including lower prices on acquired products and government investigations. But, for the time being, there are quite a few companies - namely Valeant, Endo and Concordia - that are in deleveraging mode, which will give them time to reassess their strategies and long-range plans,” added Levesque.
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