If this year's life sciences sector M&A environment has been red hot, then expect the next 12 months to be white hot. While the number of completed megadeals continues to mount up in 2015 it appears that, despite the challenges of getting those deals done, executives are still chomping at the bit to deploy strong cash reserves to boost their business operations in order to build core competencies and increase product pipelines. That is one of the major findings of a new study, "Life lines: Life sciences M&A and the rise of personalized medicine," released by law firm Reed Smith, which reports that 94 percent of the life sciences companies surveyed are planning to make an acquisition in the next year, with 91 percent of the U.S. respondents expecting those to involve cross-border transactions.

Demographically, 100 senior pharma and biotech executives (CEOs, chief information officers and directors of strategy) were involved in the survey, from companies almost evenly located across Asian-Pacific (APAC), North American and European locations. The companies ranged in size from $100 million to $1 billion (34 percent), $1 billion to $5 billion (33 percent) and $5 billion-plus (33 percent).


The overarching driver of the increased deal flow, the report noted, is that for many life sciences companies, acquisitions have become the "flavor of the month" and a less risky route to achieve growth than the more costly in-house development of all new products. In parallel, in Western markets especially, the cost of capital remains incredibly cheap. While there has been no indication that the U.S. Federal Reserve will raise the interest rates dramatically anytime soon, life sciences companies are using this window of opportunity to get transactions done, in case rates do start rising in the near future.

The prevailing fiscal environment and business strategies for growth accounts for the high number of companies surveyed indicate their enthusiasm to explore the possibility of an acquisition over the next 12 months.

During this period, the report found that companies located in the U.S. intend to increase investment in marketing/distribution (29 percent of respondents), as well as clinical trials (21 percent) and late-stage research and development (18 percent).

With many companies sitting on large piles of cash it was not a surprising finding from the survey that 87 percent expect to be able to finance their next deals from cash on hand.

In terms of focus, almost three-quarters (74 percent) of companies hope to buy companies with products that have early stage R&D potential, while almost as many (69 percent) are targeting companies active in late-stage R&D.

Executives are casting their nets wide looking for overseas opportunities – particularly where growth in their existing markets may be slowing, the report indicates, with 28 percent of respondents reporting they are targeting their searches on the APAC region.


Another trend identified in the survey is the growing role that personalized medicine will play in the strategies of life sciences companies. More than two-thirds of firms (70 percent) indicated they were interested in businesses that have a focus on personalized medicine and an area where they will increasingly look to make acquisitions. It was, in fact, the second most popular area specified by the respondents behind "companies with products that have early stage R&D potential" at 74 percent. The strong interest in personalized medicine reflects expectations that it will play a significant role in business strategies going forward.

That is especially true for large pharmaceutical companies that have committed to personal medicine to some extent, Reed Smith's Diane Frenier, a life sciences corporate partner based in Princeton, told BioWorld Insight.

"They are certainly not at the point where they are going to change their entire strategies to one focused on personalized medicine." However, there is a recognition that it should be part of a balanced product portfolio since personalized medicine is one of the drivers in the marketplace, she added.

For the time being, broad indication drugs remain the mainstay of the portfolios of the majority of pharmaceutical companies. Despite that focus, personalized medicine offers the promise of higher returns despite smaller potential patient populations, given the more targeted nature of drugs, the report concludes.


Strategic deals are often prompted by the need to overcome potential roadblocks. Executives indicated that their greatest challenges to business growth are the changes that are occurring in health care policy/reimbursement (29 percent), where the regulatory outlook remains unclear, particularly for personalized medicine; and they also worry about the high costs of drug development (24 percent).

The boom in dealmaking has also presented a major issue of concern for company executives, and that relates to the highly competitive nature in the sector, which was highlighted by 74 percent of respondents.

Reed Smith noted that "competition for the right alliances will be intense, with three-quarters of companies seeing partnerships with new entrants and biotech businesses as likely to be of most benefit to their product development."

Despite the uncertainties, Frenier said she expects that the M&A environment will be robust for the foreseeable future as companies try and figure out how to position themselves to become more efficient in how they utilize their resources.