This post examines the reasons behind increasing M&A activity within Pharma Industry. We have analysed the M&A driven growth and the market share of Big Pharma over last 15 years and compared market share of leading player across industries to answer- Why Pharma Is Ready For Consolidation?
Declining Market Share Of Big Pharma
Pharma Industry is often criticized to be controlled by the the Big Brothers of the Pharma Industry. To confirm the dominance of Big Pharma, we analyzed the sales growth and market share of big pharma companies over a period of 15 years (2000-2014) by using the IMS health Top Line market size data and annual revenues of the top ten companies in the corresponding year.
Big pharma that grew at an impressive growth rate of around 12% CAGR from 2000-2007 period had a very lacklustre period between 2007-2014. From around 50% market share held by top ten pharma companies in year 2007, big pharma share of the pie came down to only 35% in year 2014. As per our analysis, dominance of Big Pharma is declining, pointing towards a new reality and the increasing role of M&A.
New Reality Of Pharma Industry
One of the major reason stated for loss of big pharma market share is patent cliff. The term “patent cliff” refers to the around five-year period when bulk of the “blockbuster” drugs – those with annual sales more than one billion dollars lost their patent protection. This period emerged in 2009 and continued through 2014. This new reality clubbed with increasing regulatory pressures and diminishing R&D productivity is contributing to the rising merger and acquisition phenomenon in the pharmaceutical industry. We wanted to analyse if megamergers have historically helped big pharma companies.
For this analysis, we compared the big pharma sales growth against the global pharma market growth rate over a period of 15 years (2000-2014).
In the following chart, we found multiple spikes of big pharma sales growth over global pharma sales growth. All these spikes were the result of mega-mergers by big pharma in the previous or the corresponding year.
Our analysis confirms that megamergers actually helped big pharma grow more than the growth of the overall market. We believe that M&A is going to be the preferred choice by big pharma to compete in the new reality of pharma industry.
Is Pharma Ready to Witness Major Consolidation?
To confirm, if pharma industry has enough room for consolidation, we compared the market share of leading companies across mass merchant, FMCG, Software, Aerospace & Defence and Automobile industry against Pharma. We used the Bloomberg industry market leader data to gather industry level data of other industries for this analysis.
Contrary to popular belief, pharma industry remains very fragmented. Largest pharma company has around 5% share of the total market. We believe that market is ready to witness lot more consolidation activity.
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