The Health Care M&A Monthly: Big Pharma And M&A -

Will The Big Deals Become A Thing Of The Past?

With all the talk of health care reform, or “ObamaCare,” moving forward as a result of both the Supreme Court decision last June and President Obama’s reelection last month, we thought it might be worthwhile to take a look at the pharmaceutical M&A market going forward and what impact these “reforms” will have on transaction size, frequency and structure.  The pharmaceutical sector is one of the most active M&A areas in health care, both in number of transactions and dollar volume each year.  It may be the only sector to have more than 10 deals in the past 10 years with individual values more than $10 billion, with two above $60 billion.  In the past three years, there were an average of 126 acquisitions of pharmaceutical companies or products each year, with a normalized dollar volume near $40 billion (2009 was an outlier year with one $68 billion deal).  So far, 2012 is on track to be similar to the previous three years, although the number of transactions may be lower.

The pharmaceutical industry is huge, and while hospital care garners more of the national spending on health care each year, expenditures on prescription drugs are the fastest growing of all health sectors, increasing by 11% annually for the 30 years from 1980 to 2010, compared with 7% for hospital care and nearly 6% for physicians and outpatient care.  To put that growth in perspective, prescription drugs as a percent of total health care spending has increased from just about 5% in 1980 to 10% in 2010, totaling $258.6 billion.  Spending on hospital care, growing from $110.5 billion in 1980 to $794.3 billion in 2010, has declined from 39% to 31% of total health care spending in that 30-year period.  It may have been partly because of this growth, especially in high-priced drugs, that caused the pharmaceutical industry to make its behind-closed-doors deal with President Obama in 2009, agreeing to $80 billion in reduced spending, but against forecasts, through Medicaid rebates and other give-backs.  While publicly demonizing the industry, President Obama was quietly aligning their mutual interests.  Time will tell how that plays out for the sector.

The pharmaceutical industry was one of the first truly global industries, and this dates back to the early 20th century with expansion in the U.S. coupled with research and commercialization in Germany, France, Switzerland and the U.K.  But as these developed countries grew their pharmaceutical businesses, how they paid for prescription drugs in their respective countries evolved into vastly different systems which resulted in significant differences in prices.  There are many reasons for the growth in expenditures on pharmaceuticals in the U.S. in the past 30 years, but one of the factors is that we just pay more for many of the same drugs than customers in almost every other country.  That is one reason why in North America, with just 5% of the world’s population, pharmaceutical sales represent nearly 40% of the worldwide total.  Europe has 12% of the world’s population, or more than double North America’s share, but its share of the pharmaceutical market is less at almost 30% (including Russia).  The retail price of many leading drugs is two to four times higher in the U.S. than it is in Germany and the U.K.........Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today