Unlocking R&D productivity

The role of innovative and unfamiliar acquisitions 

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Since 2010, our reports on ‘Measuring the return from pharmaceutical innovation’ have tracked an overall decline in predicted returns from R&D investment. Nearly every year, average R&D costs have increased, and average forecast sales have decreased across the companies we have monitored, demonstrating the increasingly challenging R&D environment that biopharma companies are facing. The role of innovative and unfamiliar acquisitions unlocking R&D productivity analyses the different approaches biopharma companies have taken to improve R&D productivity and value with a particular focus on the role of making small-to-medium size R&D-driven acquisitions.

Growing importance of M&A to late-stage pipeline value

Analysis by Deloitte of 12 large cap and four specialised biopharma companies found that the contribution of self originated R&D to the total value of their late stage development pipeline fell from 59 per cent in 2015 to 41 per cent, whereas the proportion contributed by R&D acquisitions increased from nine per cent to 27 per cent. The reality of the current market environment requires M&A to bolster pharma companies’ pipeline to fulfil current and future revenue targets.

Significant premiums are just one of the challenges which must be overcome

Further analysis on R&D driven deals completed since the start of 2017 highlights the significant premiums being paid to access this innovation with deals that expand into a new therapy area, provide access to assets in a new modality or provide a significant digital capability commanding premiums of 148%, 111% and 83% respectively.

Despite the challenges, the acquisition of innovative companies remains an important route to access external innovation, with the acquisition of the organisation method have a number of strategic benefits in the search for a sustainable competitive advantage.  However, there are a number of significant challenges that, if not addressed during the deal cycle can not only destroy deal value but harm overall R&D productivity.

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