Is the Pharmaceutical sector heading towards an economical bubble?
An economic bubble is a temporary condition caused by unjustified speculation in price of stock or commodity to a level that bears no relation to its real worth or potential. The suggestion of a bubble emerging in the pharmaceutical sector is due to the fact there has been a lot deals already done this year which already bypasses the figures of the previous year.
Multi-billion dollar deals, sky high stock prices and a scramble to be part of the acquisition action. There is no denying a pharmaceutical frenzy due to the amount of deals already done this year but experts have said it doesn’t mean the sector is heading towards a bubble.
Pharmaceutical and life sciences leader at PwC Abhijit Ghosh said “We’ve been expecting this for at least one-and-a-half years.”
“The pharma sector, especially the big pharma companies, are facing multiple challenges as we speak. So that is propelling them to think of something different.”
Ghosh terms of “different” means consolidating. 95 global pharmaceutical merger and acquisition deals have been announced as of May 2014 according to Mergermarket. The deals have valued in total a whopping $93 billion, which is 22% higher than the whole of 2013 where it saw 290 deals costing $75 billion.
However this could become even larger if Pfizer pursue another bid for AstraZeneca. But a suggested “final bid” from Pfizer was rejected on the 19th of May. Suggesting that deal will be off now. There is also Velaent Pharmaceuticals bid for Allergen which was nearly $50 billion. This offer was also rejected on the grounds that it undervalued the company.
The heady valuations of the pharmaceutical companies comes as they scramble to restructure, reshuffling their portfolios to keep up with a healthcare model that is changing from vast to Niche.
Mr Ghosh added: “They will be more focused on individualised treatment… You cannot handle cardiovascular, as well as oncology, as well as diabetic at the same time. So it’s a matter of now refocusing back on a certain sector where you can hope to win in the market.”
Making sure you are an expert in a handful of products makes it easier to come up with new treatments. It also means becoming more efficient to create more value for investors in the long run.
With Huge deals still in the pipeline, which “big pharma” will be taking the headlines in the coming months.