Knowledge Firms say M&A is Growth Engine

M&A is the pathway to growth in the biotech sector, the Life Sciences and Health Care practice at Deloitte said last week in a white paper developed in collaboration with the Economist Intelligence Unit.

“Firms can no longer rely on internal resources to achieve their objectives,” Stuart Henderson, life sciences partner at Deloitte said in a statement that included highlights from a survey where an undisclosed number of respondents said they expect biotech revenue to grow 15 percent annually over the next decade, compared to 10 percent for pharma. The growth engine? Small biotech companies, the survey said.

This white paper echos the reason for this blog. The drug discovery and development market is in flux and smaller biotechs are one leg of a chain stretching from the basic science being conducted in the labs of academia and government to the sales and marketing engines of pharma. Small biotechs are willing to tackle product development that the larger pharmas won't (or can't) and are willing to take a higher risk profile in return for a higher potential for return.

Further, Deloitte said Asian life sciences markets will expand faster than those of the USA and Europe with approximately half of survey respondents believing revenue growth in China and India will exceed 15 per cent a year over the next decade, outpacing growth rates in the USA, Japan and western Europe, which are projected to increase at 10 per cent or less annually.

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In a separate report, Katan Associates International said last week that Asia and the EU will be active areas for M&A in biotech.

"While the United States has historically been the most active region for deals, Europe and Asia will provide fertile grounds for buyers, given value considerations and a strong lack of mezzanine and secondary capital providers in these markets," said Seth Yakatan, a partner in the Los Angeles-base firm. The firm said Europe has more than 2,000 biotech companies, a number that is not sustainable.

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According to a report issued last week by Industrial Information Resources of Houston, the biotech drug sector grew to to roughly $27 billion in 2004 from an estimated $12 billion in 1990 – compared to the nearly $270 billion traditional pharmaceutical market. The report said biopharmaceuticals comprise roughly 5 percent of the world's prescription drug sales, but account for 6 of the top-50 drugs by sales, and 13 percent of new medicines approved by the FDA in the 1990s, and about 18 percent of all drugs in development.