The global life sciences and pharmaceuticals sector is undergoing a wave of strategic M&A activity, as incumbents make acquisitions to enhance the technological capabilities they need to keep pace with the evolution of the industry. This article originally appeared in Pharma Letter
Pharma is not unique in this respect. A similar process is taking place in essentially every other industry and is a result of technology having evolved from a discrete, standalone sector into something that cuts across financial services, manufacturing, logistics, retail, energy, and any other vertical you can think of. The convergence of technology with each of these industries has turned the likes of Alphabet, Amazon, Apple, Microsoft, and Facebook into a major potential disruptive threat to the current incumbents.
The consequences of this dynamic include banks acquiring the FinTech start-ups originally aimed at disrupting them, in order to avoid being relegated by the customer-facing internet giants to the role of pipes and valves in the financial plumbing infrastructure. Similarly, carmakers threatened by tech companies’ progress in the field of self-driving cars have invested in software businesses to stay relevant in the race to pioneer next-generation mobility.
With Alphabet’s life sciences unit Verily having last year announced a $500 million joint venture with Sanofi to combine devices, software, and medicine, it’s natural for other pharma players to respond accordingly. Moreover, the application of cutting-edge software, hardware, and communications infrastructure has the potential to directly alleviate many of the greatest headwinds facing the life sciences industry.
With Alphabet’s life sciences unit Verily having last year announced a $500 million joint venture with Sanofi to combine devices, software, and medicine, it’s natural for other pharma players to respond accordingly.
For example, the industry has suffered from anaemic improvements in scientific productivity over the past 15 years. The processes used to discover and develop new products remain largely similar to those employed at the beginning of the millennium, whilst attention has since turned to more complex, difficult-to-treat diseases, resulting in disappointing output levels. The use of Big Data, Internet of Things (IoT), and Artificial Intelligence (AI) technologies to digitise and automate the R&D process can expedite clinical development and improve outcomes.
On the marketing and sales side, the growing list of regulatory requirements imposed upon the life sciences sector over the last decade, compounded by rising volumes of content and the proliferation of digital channels, eats up an ever-increasing share of pharma companies’ budgets and time. Access to tech-enabled compliance and approval solutions would allow these companies to mitigate regulatory risk and improve operational efficiency.
These various strategic rationales can be identified as having underpinned a number of recent transatlantic pharmatech acquisitions.
In October, NYSE-listed Danaher Corporation acquired IDBS, a UK-headquartered leader in enterprise scientific informatics platforms. The combination of IDBS’s innovative data analytics and modelling software with the scientific instruments produced by Danaher’s Life Sciences division positions them to enable the ‘digital lab of the future’ together.
Pharma companies’ operations frequently have a strong transatlantic dimension, bolstering the logic to establishing a presence in the UK.
The major forward step in digitising lab processes facilitated by the Danaher-IDBS deal has parallels with developments taking place in another high-precision sector that has also historically lagged behind in integrating technology: namely, industrials. Automotive, aeronautical, and numerous other manufacturing businesses are increasingly employing 3D measurement and simulation software and machine-to-machine (M2M) connectivity to better monitor and optimise production lines. Danaher’s acquisition of IDBS allows it to do something similar with its instruments, with real-time data collection, analysis, and exchange enabling greater collaboration and faster development of new drugs and therapies while improving productivity.
Meanwhile, the $130 million sale of Oxford-based Zinc Ahead to NYSE-listed Veeva Systems Inc. is an exemplary strategic acquisition of a business developing the technology to navigate international and regional regulatory barriers at the marketing and sales stage. At the time of the deal, over two million digital assets had been approved through Zinc Ahead’s software-as-a-service (SaaS) compliance solutions, by 40 of the top 50 pharmaceutical companies globally. With the addition of Zinc, Veeva broadened its cloud-based offering to pharma companies expecting an end-to-end solution.
Leading American life sciences companies’ interest in acquiring the most advanced tech businesses represents a particularly noteworthy opportunity for the UK’s well-developed ecosystem of entrepreneurs and companies in the pharmatech space.
It’s no accident that the examples of IDBS and Zinc Ahead are both British companies acquired by larger listed US buyers. Leading American life sciences companies’ interest in acquiring the most advanced tech businesses represents a particularly noteworthy opportunity for the UK’s well-developed ecosystem of entrepreneurs and companies in the pharmatech space.
Just as the trend of pharmatech M&A is attributable to both the broader theme of technological disruption and the specific headwinds facing the pharma sector, the reasons for UK businesses being well positioned to capitalise on this wave of transatlantic pharmatech investment range from the collective to the individual.
Most generally, macroeconomic conditions are highly conducive to large US players making opportunistic acquisitions of UK companies. The continued strength of the dollar against sterling in the aftermath of last year’s EU referendum, compounded by the sustained availability of cheap debt and the high tax cost of repatriating offshore excess cash, provides American buyers with a significant effective discount on UK assets.
This is another respect in which pharmatech is analogous to the FinTech sector. The UK is a global FinTech leader, due in part to its access to the world’s foremost financial hub, combined with the depth of native engineering talent produced by Britain’s world-class academic institutions. By the same token, the UK’s pharmatech landscape has benefited from both proximity to the European pharma hubs and access to a similarly skilled and relevant workforce.
More specifically to the pharma industry, companies’ operations frequently have a strong transatlantic dimension, bolstering the logic to establishing a presence in the UK.
However, the most fundamental driver of US interest in UK companies is their technological sophistication, highly skilled R&D workforce, and the strategic benefit they can therefore provide to an American acquirer.
This is another respect in which pharmatech is analogous to the FinTech sector. The UK is a global FinTech leader, due in part to its access to the world’s foremost financial hub, combined with the depth of native engineering talent produced by Britain’s world-class academic institutions. By the same token, the UK’s pharmatech landscape has benefited from both proximity to the European pharma hubs and access to a similarly skilled and relevant workforce. IDBS’s win of Cloud Product of the Year at the 2017 National Technology Awards exemplifies how this ecosystem helps produce technology leaders.
The stars are aligned for strategic consolidation in the pharmatech space to accelerate in the coming years – and we can expect the UK’s line-up of cutting-edge pharmatech companies to feature prominently within this activity.