RE:RE:Big pharma is set to keep signing bigger deals in 2024 March 21, 2024 - "Investors are losing faith in the confidence of the pharmaceutical business model, looking out into time.” said Greg Rotz, U.S. pharma & life sciences advisory leader at PwC.
As pharmas navigate the next steps of a potential economic upswing, they need to make the right kinds of deals to secure new market “white spaces” — however risky it is to explore the unknown — to bring investors back into the fold, Rotz said.
Introducing more risk into the portfolio could help pharmas see better returns, despite the potential for failure, Rotz said.
Companies with a sharper focus tend to be more appealing to investors, said Nicole Daley, a life sciences and M&A partner at law firm Allen & Overy. “With companies that are more honed in and focused, there’s also the risk that the thing you’re most focused on then maybe doesn’t work or maybe doesn’t rise to best in class. But being more focused as opposed to more diverse in terms of what prospects you’re thinking about seems to be the more appealing route,” Daley said.
“We think of M&A as a means to accelerate strategy, but M&A isn’t an end in itself,” Rotz said. “Executives at today’s pharmaceutical companies need to find the fundamental narrative of their strategy to differentiate themselves — once that’s clear, we expect to see M&A playing a big role in helping accelerate those strategies and fill in the products and portfolio underneath that strategy.”
A trend many large drugmakers have taken particularly seriously is divesting business arms to focus more wholly on innovation. J&J, Pfizer, Merck & Co. and more have sold off sizable branches in the last several years to put greater emphasis on more groundbreaking areas. It’s a strategy that pays off down the road, Rotz said.
“The more you can create coherence between your capabilities, your strategy in the market and the products and portfolio you have, the faster you can go and the more value you can create,” Rotz said. “That’s the calculus that has been happening, and it’s a good ongoing exercise for management teams to be undertaking.”
But as companies whittle themselves down to become sleeker R&D machines, they need to build up in the spaces where they’ve chosen to focus, Rotz said. And that has changed the face of today’s dealmaking strategies.
As for building and maintaining trust among investors that these deals will fuel growth, Rotz has fundamental advice for executives: Be real.
“It’s in everyday actions, when the pressure is on, that we see companies either enhancing and building trust or losing trust very quickly, and leaders need to … know that [pharma’s] trust generally [from] society is declining,” Rotz said. “So you don’t get the benefit of the doubt, and your authentic engagement with stakeholders is critical.”