The rising stock market has created a surplus of cash for the large pharmaceutical and medical device companies which has led them to look carefully at their existing portfolios and spurred the acquisition of new technologies and drugs that will better position these companies for growth.
Additionally, tax incentives have also driven M&A activity, as companies look overseas to take advantage of lower tax rates. This also allows acquirers to penetrate international markets that they may not have necessarily benefited from previously.
This spree of consolidation will continue to squeeze out players who are unable to compete and other potential acquirers. It will be interesting to see pricing for venture-backed companies in 2015 as the number of buyers has diminished.
The big question to contemplate: “What will happen to R&D as the larger companies get larger?” For the past several years R&D dollars have decreased in an effort to increase the bottom line. Many companies have relied on organic growth from the acquisitions of early stage companies. One promising note is that larger companies tend to have more cash and resources to navigate the regulatory environment that comes with new drugs and technologies – the ongoing hurdles with the FDA.
What will this mean for VC investment in life sciences? We have already seen a decline in funding given the lengthy returns on investment but will this further impact the amount of venture dollars for early stage companies? For instance, Covidien has always had a strong venture arm and has been a great source for early stage funding whereas Medtronic has had a limited influence in the early stage environment. Will new drugs and technologies spin out of the large companies moving forward?
Lastly, what will this mean for employees? There is no doubt that this consolidation will create redundancies in workforces across the globe. Will there be an influx of unutilized/underutilized manufacturing facilities on the market?
While we consider the impact that these trends will have on the industry, one thing is certain – [tweetable alt=””]it will be even more critical to think about the long term impact of Life Sciences real estate holdings[/tweetable], both from a talent/employee perspective, as well as a capacity and space utilization perspective. With these company acquisitions come much upheaval and change – it’s critical to manage that change through strategic integration with a focus on company culture and increasing the bottom line. Please contact Austin Barrett at Barrett@t3advisors.com for more information about T3 Advisors’ Life Sciences services and visit http://www.t3advisors.com/our-focus/life-sciences/.