THE WALL STREET JOURNAL.
CFO insight and analysis written and compiled by Deloitte
Updating the Life Sciences M&A Playbook:
Deepening the Bench for a “Value Game”
Sports fans of
all kinds know that sometimes to become a championship team, coaches need to
take a step back, look at the overall value of the team, and focus in on
certain areas to deepen strengths and capabilities. The same could be said
for a new trend that appears to be happening in the pharma industry. In
recent weeks, the front page news for health care has featured headlines of
a wide range of M&A deals that have been announced or proposed. The question
now is whether this is the start of a new wave of M&A action. And more
importantly, could it have a positive—and potentially game-changing—impact
not just on the life sciences sector, but also on the transformation of the
health care system from one based on volume to one based on value?
Hisey, Vice Chairman and U.S. Life Sciences Leader, Deloitte LLP
In the last
round of heavy M&A activity in the early 2000s, pharma companies were
generally merging into large, diversified enterprises. But, these recent
deals are different: companies are refining the focus of their business as
they scale up within particular areas of specialization and exit others.
Instead of trying to compete in several games at once, pharma companies are
deepening their benches in key areas to help add strength and the ability to
play at an elite level in areas where they believe they can excel.
about this in various ways; some are acquiring or merging with whole
companies while others are buying, selling or trading certain business
units. But, the aim is the same: they’re concentrating on becoming
superstars in their fields, redirecting investments and resources to build
on their strengths and letting go of areas that may hold them back.
Why Is This Happening?
In the U.S.
and globally, health care reforms and market forces are accelerating the
transformation from a volume-based to a value-based marketplace.
Stakeholders are pressing not only for lower prices, but also for clearer
evidence of the value from the health care products they buy. Many providers
and consumers want innovation to march forward and deliver new products that
offer improved clinical outcomes, safety profiles and cost effectiveness.
These customers are looking forward to the day when a complete line of
pharmaceutical products is available to address the full spectrum of
diagnostic and therapeutic stages in every major disease category.
meet these market demands – while sustaining a viable return on investment –
requires tremendous resources and balance between research and development
(R&D), production and commercialization capabilities. The recent M&A
activity suggests that some companies are betting it may be easier to strike
a profitable balance with a more targeted, specialized business strategy.
Focusing on a select set of areas may bring operating synergies, new
economies of scale, and cost- and knowledge-sharing across similar projects,
all of which may contribute to a more substantial product portfolio, better
financial profile and a stronger competitive position.
importantly: Is this a potential “win-win” for the entire health care
efficiencies that pharma companies could achieve if they put a greater focus
on their strengths may have some significant and lasting benefits for payers
and product users. Manufacturers may be able to pass some of these cost
efficiencies through to customers in the form of lower prices and greater
flexibility in contracting, while continuing to invest in R&D efforts to
expand product portfolios and extend product lines.
But, the real
game-changing play could come from a new capacity to provide deeper
expertise regarding expected treatment costs and outcomes for particular
patient populations and a better understanding about which products might
work best for particular patients: population health at a personalized
level. As pharma companies develop deeper expertise around a fuller set of
diagnostic and therapeutic approaches for a particular disease category,
they are likely to be in a better position to collaborate with providers,
health plans and government programs looking for better ways to measure and
manage the health care needs of particular patient populations. And, as a
result, we could see more partnerships emerge as pharma companies work with
health care providers and health plans to exchange access to patient
investment in specific therapeutic areas could give pharma companies the
opportunity to get more involved in population health and disease management
initiatives. Could we be looking at a future when pharma companies offer
access to a portfolio of products for a fixed price that would then be used
at the discretion of the purchaser? Purchasers, especially accountable care
organizations, might find this arrangement appealing―what is currently a
variable cost would become fixed in some sense. Careful consideration would
need to go into how financial risk would be shared and how treatment
incentives would be affected, but this collaborative effort could move
everyone closer to offering truly patient-centric care by focusing on
identifying the best medicine for a particular patient from a medicine
cabinet stocked with products that deliver high value.
companies take a look at their playbooks and update their game strategies,
we’ll have to see how many choose to deepen their benches and specialize in
targeted areas. At this moment, all signs are pointing to some exciting
moves that may enhance our position around access, quality, and cost and
bring us closer to achieving the ultimate goal of improving patient outcomes
for a healthier population.
—Produced by Terry Hisey, vice chairman and U.S. Life
Sciences leader, Deloitte LLP
May 12, 2014, 12:01am