Major Drug Companies Acquire or Partner with Smaller Biotech Firms

The world’s largest pharmaceutical makers have been on a buying binge, acquiring smaller biotech and drug companies at extremely high prices. This activity accelerated significantly in recent years. The companies that were purchased tended to be highly innovative firms with outstanding new drugs, typically in the biotech sector. In the end, the larger companies making these acquisitions may have saved money by obtaining exciting new drugs without years of investment in research and development. At pharmaceutical makers, profits are under constant pressure because popular drugs that have made immense profits for many years eventually lose their patent protection and face vast competition from generic versions. In the U.S., generic drugs now hold about an 90% market share by volume. This puts pressure on large research-based drug firms to develop new avenues for profits. One such avenue is partnerships with and investments in younger, smaller biotech companies. The final price paid is often dependent upon the company reaching certain milestones, such as regulatory approval or revenue growth.

Much of the future success for the world’s major drug companies will lie in harnessing their immense financial power to fuel acquisitions and partnerships, along with their legions of salespeople and marketing specialists to license and sell innovative new drugs that are developed by smaller companies. There are hundreds of exciting, smaller biotech companies that are focused on state-of-the-art research that lack the marketing muscle needed to effectively distribute new drugs in the global marketplace. In addition to money to finance research and salespeople to promote new drugs to doctors, the major drug makers can offer expertise in guiding new drugs through the intricacies of the regulatory process. Some of these partnerships will eventually lead to vast revenues. Others may not result in blockbuster drugs that will sell billions of pills yearly to treat mass market diseases, but they often lead to very exciting, targeted drugs that can produce billions of dollars in eventual revenues. A string of these mid-level revenue drugs can add up to a significant amount of yearly income.

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