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27-Sep-2018 10:21:53


The pharmaceutical sector remains a lucrative market for M&A transactions as pharma companies need access to new or better technology platforms in order to secure their market share. As in any industry, the big players try to buy the smaller fish to increase value and reduce competition. Twenty years ago, the market consisted of a great variety of big pharma companies, whereas nowadays we are looking at a consolidated industry. We are left with only a handful of powerful names, with one of the greatest acquisitions in history remaining Pfizer’s acquisition of Warner Lambert valued at $90 billion in 1999.  

The pharma industry comprises the development, production and marketing of medications, which brings about many different stages in which transactions can occur. Whereas in the past it was the post-production phase that called for M&A activity, today we are facing a new wave of outsourcing in the R&D stage. This phase is the most cost- and time-intensive as it can take up to 15 years and millions of pounds in cash until a product is introduced to the market. 

In order to compensate these efforts, patents are filed and put in place. Although patents last approximately 20 years, they are filed early in a drug’s development cycle, leaving little time for life science companies to recoup their R&D costs. Because of this, companies are now moving towards a trend of outsourcing tools that will facilitate R&D efforts, especially when patents come close to their expiration date, the so-called patent cliff.

Read about Sterling's corporate partnership with AstraZeneca here.


In recent times the conventional R&D approach for large-kept pharma companies has been disrupted by emerging biotech firms, who are small in comparison but strong in focus and innovation. Biotech firms with strong portfolios of products in their pipeline are attractive acquisition prospects to traditional pharmaceutical companies. This is in order to amplify their existing product offerings or to supplement their internal R&D efforts. In R&D the longest phase is generally the clinical trials period where outsourcing is growing in relevance. It is expected to rise to a $43.7 billion-dollar industry by 2026.

Earlier this year, French drug-maker Sanofi announced its plan to spend $11.6 billion and $4.8 billion to acquire Bioverativ and Ablynx respectively. The need to bring innovative products to the market is as high as ever, which enforces many big players to follow in Sanofi’s footsteps.

Outsourcing can even be found with something as essential as medical instruments. Long-established pharma company Roche, who has been known for their in-house technology and medical devices, is following this trend. Earlier this year Roche acquired Foundation Medicine and Flatiron Health in a move to strengthen its personalized cancer healthcare strategy. This sort of technology is expensive and requires specialist knowledge to operate properly – outsourcing it is a much easier option. 


The third phase in R&D after pre-clinical and clinical trials is the regulatory review. This is where the New Drug Application is submitted in order to get marketing authorisation, which is followed by FDA review. Only last year a major problem arose with a drastic 57% drop in FDA approvals for drugs, which pushed large-kept pharma firms to strongly consider ways of outsourcing. This is particularly frustrating when a patent is already in place, as it means that it won’t serve to recover the R&D costs and is very likely to mean activity for the M&A market. We are facing interesting times in the pharma sector with many companies reaching the patent cliff of their ‘blockbuster’ product as $215 billion in sales for medications could be lost from patent expirations between 2015-2020. The patent cliff is critical to these organisations because it means that, overnight, new players enter the market to sell their product as generic, up to 85% cheaper than the brand-name. This compels enterprises to not only lower their prices and cut back on marketing for that specific product, but also it forces them to rethink their overall strategy. 

Do they go through the same laborious steps internally to bring out a new product that will keep pace with competition, or do they opt for joining forces with a firm that is up to speed and can push them forward? 


The importance of outsourcing becomes evident when taking a closer look at the implications of R&D and patents. R&D is currently being fuelled by external entities and M&A is important not only when it comes to keeping a strong portfolio of products, but also when it comes to increasing geographical footprint in order to leverage these portfolios.

With such a vast amount of information being shared between so many outsourced parties, especially when it takes place at a highly confidential level, a method of secure file sharing is essential for pharmaceutical deals. The need for virtual data room services is clear, and is only going to increase. The main challenge then will be to choose a provider that understands their needs the best.

At Sterling, we have been dedicated to understanding the needs of our pharma clients, among the main ones being AstraZeneca, so that we can adapt our platform to suit the complex needs of transactions in the pharmaceutical sector. Similar to the smaller, specialised biotech firms, outsourcing data storage to us means that pharmaceutical companies can benefit from our singular focus on improving our technology and service.

With regard to our corporate partnership with AstraZeneca, they see particular value in our Chinese-speaking support team being available 24/7, and also our highly sophisticated Q&A tool. The Q&A tool allows them to streamline complicated questions and answers between the diverse set of people involved in pharma deals – a feature that enables a lot of time-saving and that allows for more accurate flow of information.

Free Data Rooms For Pharma Deals


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