While many in the industry think Big Pharma faces competition from technology-driven start-ups, which currently seems plausible, Big Pharma has a plan and we can expect more M&A in the future, according to Michael Abrams, a Managing Partner of the global healthcare consultancy Numerof & Associates.

With layoffs in the pharma sector tied to expectations that revenue will be down, Abrams discusses how this might affect their efforts to integrate new products and companies acquired last year. Once the workforce is stable, he expects another increase in M&A activity.

Contract Pharma: What’s your perspective on new pharma versus big pharma in today’s market?

Michael Abrams: The idea that new and big pharma are competitors in the same race is, by and large, myth. Rather than competitive, the relationship between such companies has typically been synergistic. After all, smaller pharma companies have had an outsized impact on drug development, accounting for 63% of all new prescription drug approvals over the past five years. Smaller, more nimble companies bring and shape the seminal concept and conduct early-stage R&D but lack the resources to take their products further in the drug development and regulatory process. Typically, these companies partner with big pharma companies that benefit from de-risked technologies, and which have the deep pockets and global presence to effectively market the end-product.

It’s true that the fortunes of big pharma companies like Pfizer, Novartis, and Roche have declined over the past five years, while those of new pharma companies like Regeneron, Genmab and Vertex have increased substantially. Does this amount to a reversal? I don’t think so. Chalk it up to culture.

New pharma companies are typically started by scientists, often academics, who are willing to invest in bringing their ideas to life. That culture is all about the science and the scientific advancement it represents. But they are typically naïve when it comes to the requirements for commercial success. Often, the solution is to partner with one or more big pharma companies that have the business acumen to navigate the challenges of development and commercialization.

Clearly, some of the smaller players have found a way to broaden their capabilities and master the commercialization challenge. Indeed, entrepreneurship is a key part of the new pharma culture. Might some of these players grow to challenge big pharma? Perhaps – no one believes that the space should be static. But I don’t see a major upheaval in process.

Contract Pharma: What role does technology play in big pharma and start-ups?

Michael Abrams: The fact that research technology has become more affordable and available has been key to the rapid rate of innovation in the pharma business. This has enabled small companies to get into the development game in ways that might not have been possible years ago. The industry is still working out the uses for AI in the pharma development process and applications, and at least initially will be costly, favoring big pharma. Like other technologies though, the cost will go down quickly, ultimately making it more widely accessible, leveling the playing field once again.                

Contract Pharma: With layoffs in the pharma sector, how might this affect their efforts to integrate new products and companies acquired last year?

Michael Abrams: Having fewer people in big pharma companies to manage the work of integration will mean more effort required of those individuals and possibly more time; but having fewer people who need to be part of the decision-making process will speed the process up.  One of the hallmarks of startups and early-stage companies is their ability to be nimble, something that does not characterize most big pharma, many of whom recognize that this as a capacity they need to develop.

Contract Pharma: What can we expect from M&A in the future?

Michael Abrams: Given the rapid pace of innovation, the pressure of impending patent cliffs, and the shortening of the revenue-generation life of products due to implementation of the Inflation Reduction Act, we can expect increased levels of M&A, likely at prices that reflect increased competition for new products.

 

Michael N. Abrams, MA is managing partner of the health care consultancy Numerof & Associates, based in St. Louis, Missouri. Over the last 25 years he has built a portfolio of strategy and business performance successes as an internal and external consultant to Fortune 500 corporations.