Growth from acquisition may be over, R&D return is the King.CXR AMCo acquisition transformed CXR to capable of R&D on new drugs, and with 60 new products acquired from AMCo ready to roll out in the next 3 years.
This gives and edge to CXR to be able to stay ahead of the game by developing new and exclusive drug, free from other generic competition. As well as a proven manufacturing technique from the acquisition of AMCo.
The growth by acquisition model for the pharma sector may very well come to an end, as they acquire smaller company, they also load up debts. If a company is not investing and have no plan to do R&D on their own, they will soon or later be out of the game because there are only a handfull of small fish in the tank for them to catch. While any new generic drug competitor comes to the market for their market share, it will decrease their revenue.
In the case of Valeant, which is a sad story, their shares gets hammered, #1 due to Andrew left Citron report, and #2 due to investor doubt on their sales model and transparency.
The fall of Valeant share price decreased their borrowing capability and therefore I don't see them to be able to raise capital to do any more profitable acquisitions in the coming year.
According to Kurt paulus(equity data analyst) interview in Morningstar, on 11-04-2015 4PM. Kurt mentioned pharma growth by acquisition will come to a threshold at some point.
I think the reason behind is #1, take out a competitor in the same sector who carries the same drug portfolio one already have is not a profitable move as the increase market share in the generic drug is not high enough to pay off the cost for the acquisition. Furthermore, there are usually 2-3 more competitors who carries the same generic drug.
#2, once a company can not find any valuable smaller company to acquire, their way of success is broken. Their "Growth" halt, an will slowly go down hill. mainly due to the decrease of competitivity in the drug market with no new drug being developed from R&D. broken.
#3, to be able to do #2, the company must be able to raise capital, with the current share price of the pharma sector down, its hard for some of them to make big acquisition in the near future. While the fed rate hike is also a key factor in determining the cost of the borrowing in the near future.
The above is some of my thought on the pharma sector. I think that CXR made the right choice to take AMCo. and will reward its shareholders.