The Future: M&A and Disease Management

There is a sound rationale for merger and acquisition activity within the pharmaceutical industry, and this will continue, according to Mark Tracey, executive director, international equity research at Goldman Sachs International. However, Mr Tracey told the Financial Times World Pharmaceuticals conference in London last week (Marketletter March 27), such deals do not routinely increase shareholder value.

The keys to long-term success in the industry are: innovation, in developing new products and in ways of getting them to market; proactive management which is capable of creating deals which reflect the changes in the industry; and working for the patient, he said. The opportunities for cost rationalization in the industry are still considerable, and he believes niche operations can still succeed.

Armin Kessler, chief operating officer and head of pharma operations at Hoffmann-La Roche Ltd, said the pharmaceutical industry has a clear mission, even today, and that is to discover new medicines that meet society's many unmet medical needs. However, while in the very recent past a company that developed a safe, effective drug could expect reasonable sales levels, even if the product offered marginal benefits over others on the market, this has changed drastically in a very short time. One can no longer be number five or six on the market and expect to achieve a good market share, he said. Products now need to show a real advantage over those currently available, including generics and products in the same or similar drug classes, as well as alternative modes of therapy. Also, cost-benefit analyses become crucial when true innovation is lacking.