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The pharmaceuticals industry made headlines last week with a number of big-player deals involving whopping price tags. We’ve been seeing this trend all year: $49.4 billion in deals has been announced in 2014. That’s more than 40 percent greater than the value of all 2013 deals. But last week was particularly robust.
AstraZeneca turned down a $101 billion dollar offer from Pfizer. Valeant Pharmaceuticals made a bid to acquire Botox maker Allergan for $47 billion. And in the biggest shake up, Novartis acquired GlaxoSmithKline’s oncology products and divested its vaccines business to GSK’s vaccines units (excluding flu). Novartis also decided to sell its animal health division to Eli Lilly, making Lilly the world’s second largest animal health business.
For pharma brands, this flurry of activity begs the question: should future innovation be driven by discovery or reinvention? Is it better to nurture established brands or create new ones? As more companies face loss of exclusivity (LOE) for patents on revenue-driving drugs, buying up known entities seems like a safe and thrifty move. But where does that leave us for future medical discoveries?
If we look at last week’s deals, we can see that the business strategies driving the brand strategies illustrate two divergent approaches to M&A. On one side, we have Novartis and GSK, reinforcing their belief in innovation and placing value on specific therapeutic areas by heavily investing in R&D. This is particularly evident in the oncology product round up done by Novartis.
Both Novartis and GSK have put a stake in the ground, establishing externally facing franchise brands, demonstrating the companies’ focus and commitment. The swapping of assets by these two brands suggests a desire to spur innovation through specialization.
In contrast, we see Valeant Pharmaceuticals making a move on Allergan, reinforcing the power of existing product brands. The company’s strategy is being driven by the acquisition of well-known brands in areas such as dermatology and ophthalmology, where patients and doctors are the buyers, rather than cost-conscious insurers and health systems—a strategy that provides dependable returns, yet if all pharma companies adopt the Valeant approach, we might see a sudden halt in drug discovery.
Despite the outbreak of activity right now, the year is far from over and determining which deals are the right ones for a brand is crucial. Pharma corporate brands should take the time to revisit their business objectives, rehone their brand strategies, and then look for the deals that best position them to achieve their goals.