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Mergers and acquisitions are known to complicate supply chains and increase risk in the global pharmaceutical sector as areas of non-compliance are often not identified nor appropriately managed. The importance of having a compliance team involved from the get-go is paramount in order to be fully equipped to assess the potential risks that may come from the take-over.

Ultimately it will be the responsibility of the purchasing company to ensure complete due diligence has taken place. In fact it is pre-acquisition due diligence which is crucial to acquirers when deciding whether to accept a deal. In many cases the deep analysis of manufacturing operations, often made by the acquiring companies, limits the ability of personnel to perform supply gap analyses, supplier assessments, and to manage any quality issues that may arise, all of which will have an effect on ensuring compliance. Bloomberg Finance L. Bloomberg L.

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This process was repeated with generic targets based in the United States and then with global deals excluding the United States. Flowchart of how study sample was selected.

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  • Dollar values are in United States dollars and represent the total announced value of merger and acquisition deals. Not all firms publically release the announced value paid to acquire another firm. Specifically, when private companies are acquired, the value and other financial terms of the deal do not have to be disclosed.

    Larger companies are often public companies and are required to disclose the financial terms of the merger and acquisition deal. As a result, some deals do not have an announced dollar value available and are only represented in the number of deals. All figures are presented in United States dollars and were not adjusted for inflation.

    To summarize the data, line graphs display the number of deals and total announced value for each year from to The number of deals reflects both those with released and private announced values. Globally, merger and acquisition deals from to with generic drug targets represented 9. From to combined, generic targets in the United States made up the majority Total announced value of merger and acquisition deals with pharmaceutical and generic drug targets a,b,c.

    While the number of deals had substantially increased since , the total announced value of the deals increased even more Figs. There were , 54, and completed deals without available announced values for global, United States and global excluding United States regions respectively data not shown. Number of completed merger and acquisition deals with generic targets from to Data were gathered from Bloomberg Finance L. The number of deals included deals that did not release the announced value. Total announced value of completed deals with generic targets from to Financial figures are in billions of United States dollars not adjusted for inflation and rounded to two decimal places.

    Prior to the year , mergers and acquisitions played a minimal role in the generic drug sector. The growth in mergers and acquisitions afterward is consistent with industry reports noting that generic firms have expanded their operations through mergers and acquisitions in recent years [ 1 , 18 ]. Our analysis confirms that and in particular experienced record levels of merger and acquisition activity in the generic drug industry, based on the date of deal completion. Our results suggest that there is a substantial movement in the last two years in the generic sector towards using merger and acquisition deals to grow rather than traditional greenfield investments.

    With the recent wave of mergers and acquisitions, it appears that the industry is consolidating; however, the number of enterprises in this industry grew from to [ 1 ]. Despite the appearance of consolidation, the top four generic pharmaceutical manufacturing firms in the United States made only The Herfindahl-Hirschman index HHI , a commonly accepted measure of market concentration, was estimated at 0.

    Life Science Industry Faces Bright Outlook as Mergers & Acquisition Activity Explodes

    However, the low overall concentration ratio might be misleading as compared to concentration index for specific therapeutic categories or molecules. For instance, a study that analyzed generic drugs showed that nearly half of the drugs had an HHI value exceeding 0. The study also showed that increases in generic drug prices in the United States are strongly related with market competition levels.

    In fact, several companies developed a novel business model based on the domination on non-competitive markets for older drugs by cornering niche generic markets through mergers and acquisitions in order to substantially increase prices [ 20 ].

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    Mergers and acquisitions were thus an important factor to explain the large price increases for different generics like albendazole treatment for intestinal parasites , dextroamphetamine treatment for attention-deficit disorder , and pyrimethamine treatment for toxoplamosis , nitroprusside treatment for high blood pressure and isoprotenerol used in cardiac emergencies [ 11 , 13 , 20 ].

    Our results show that merger and acquisition activity among generic drug companies have become a major trend in this industry since , but that this trend has accelerated in and , and that the United States target companies have been the center of this acceleration. It is important to note that the record level of mergers and acquisitions in the United States appeared after two years of price increases for a large proportion of generics in the country [ 3 ].

    Mergers and acquisitions should not be considered the root cause of generic drug price increases, but rather as a factor exacerbating the trend of rising prices. The results also show that the focus on United States generic targets in the last few years is not linked to the need to enter emerging markets or vertical integration with manufacturers of raw ingredients in emerging countries. The significant price increase for many generic drug products in the United States also means that mergers and acquisitions are not simply a means to increase efficiency and reduce costs.

    Governments and private drug plans have also imposed downward pressure on the price of generic drugs, forcing a restructuring in some parts of the industry [ 22 ].

    How to mitigate risk during mergers & acquisitions

    This downward price pressure from large buyers is problematic for smaller manufacturers, creating incentives for mergers and acquisitions among sellers to adjust to the market factors [ 23 ]. Typically, mergers and acquisitions reduce the number of manufacturers for specific drugs in some therapeutic niches, which can potentially lead to price increases. Mergers and acquisitions are also identified as a potential cause for drug shortages since they may result in supply disruptions based on business decisions to narrow the focus of the product line, discontinue products or to shift manufacturing to another facility [ 16 ].

    For example, after acquiring the largest producer of generic injectable drugs in , Hospira, Pfizer became the only supplier of injectable sodium bicarbonate in Canada [ 24 ]. The drug, similar to baking soda, is widely used for emergency procedures, open heart surgery or during some chemotherapy treatment. The record level of mergers and acquisitions in the last two years indicate that the economic structures of the generic sector are shifting, especially in the United States.

    In this context of increasing economic restructuring, countries must adapt their regulations and procurement policies accordingly in order to protect themselves against abusive price increases or drug shortages. The market forces in the generic sector do not necessarily ensure lower prices and safe supply for all generics. Governments must thus develop institutional capacities to deal with potential problems. Governments should consider implementing for their public drug plan a procurement process with tenders that include specific clauses to ensure the safety of the drug supply and reduce drug shortages [ 25 , 26 ].

    Read M&A insights you won’t find elsewhere

    The establishment of a public generic manufacturer, like what is found in Sweden, could also be explored as a way to deter predatory pricing and reduce drug shortages [ 15 , 24 , 25 ]. Antitrust authorities should also examine the current practices of generic manufacturers in this context of merger mania. In particular, in the United States, the antitrust laws protect consumers only against anticompetitive strategies such as price fixing among competitors.

    Generic manufacturers that legally obtain a monopoly on a product through mergers and acquisitions are free to unilaterally increase prices [ 11 ]. To ensure more market competition between manufacturers, the United States Food and Drug Administration could create special pathways for foreign manufacturers or new competitors to promote competition and allow the market to work more efficiently [ 11 ].

    Because of the magnitude of current mergers and acquisitions in an evolving generic sector, solely relying on market forces might make some essential generic drugs inaccessible for many due to high costs or shortages. Although this study starts to address the lack of information on mergers and acquisitions in the generic drug industry, it has several limitations. The most noteworthy limitation of this study is that we did not directly associate merger and acquisition deals with their specific outcomes such as the price or shortages of the products involved in the mergers. Looking at the years and , it is too early to reliably determine the impacts of the mergers and acquisitions.

    The surge in mergers and acquisitions recorded for and indicates sectorial transformations, for which further research will be needed to determine the specific impacts on the availability and pricing of generic drugs. We can only observe that the structures of the generic market are changing. The generic drug industry has changed since , and it is thus necessary to update regulations and procurement policies accordingly to develop institutional capacities to deal with potential problems.

    In particular, Antitrust authorities should scrutinize current practices, public drug plans should consider modifying their procurement process to ensure the safety of drug supply, and governments could also explore the possibility of establishing public generic manufacturers. The US Pharmaceutical sector comprises drug manufacturers, drug marketers, and biotechnology companies.

    Bristol Myers and Celgene in $74bn pharmaceutical merger - BBC News

    The chart below lists the recent mergers and acquisitions in the pharmaceuticals sector. Emerging Implant Technologies GmbH manufactures 3D-printed titanium interbody implants for spinal fusion surgery. On July 12, GlaxoSmithKline GSK announced that Dermavant Sciences acquired the rights to tapinarof, an investigational therapeutic aryl hydrocarbon receptor modulating agent for the treatment of patients with psoriasis and atopic dermatitis.