The pharmaceutical industry's buying spree will continue and investors may see more big deals as drugmakers seek ways to stave off business pressures, a GlaxoSmithKline Plc executive said on Tuesday.
Glaxo, however, will stick to its strategy of smaller acquisitions since it does not need to do deals to fill gaps in its product pipeline, Chief Strategy Officer David Redfern said at the Reuters Health Summit.
"As the major Western markets slow down, M&A has been seen as a way of getting more top-line growth," Redfern said, adding that the cost of financing was cheap and that U.S. companies have a lot of cash overseas they could not easily repatriate.
"There will undoubtedly be more M&A. There will probably be more mega-deals, largely caused by pressure. As pressure increases, you'll probably see more deals," he said.
Last year the industry saw huge mergers, including Pfizer Inc's $67 billion acquisition of Wyeth and Merck & Co's $41 billion purchase of Schering-Plough Corp.
Redfern said there would be more hollowing out of mid-sized companies. Pfizer last month continued this trend by agreeing to buy pain drug specialist King Pharmaceuticals for $3.6 billion.
Pharmaceutical companies are dealing with problems such as key products losing patent protection and development pipelines not producing enough new medicines to plug revenue gaps. As a result, they are looking outside their labs for new drugs.
Glaxo has put most of its critical patent expirations in its rearview mirror, but other drugmakers have a tough road ahead.
Investors want to see how Sanofi-Aventis SA's $18.5 billion hostile bid for U.S. biotech Genzyme Corp will close out as it seeks to plug the huge revenue hole left by the looming U.S. patent expiration of the blood clot preventer Plavix, the world's second largest selling medicine.
While smaller biotechs have been a key target for large drugmakers in their pursuit of deals, Redfern sees some larger biotech groups such as Amgen Inc and Biogen Idec Inc becoming buyers.
"Some of the bigger biotechs are getting more aggressive," he said.
Redfern said expansion into emerging markets is a hot area, but that Glaxo is more likely to make acquisitions outside the so-called BRIC nations Brazil, Russia, India and China.
"As you get outside the BRIC countries it is less competitive," Redfern said, adding that it was becoming more expensive to do deals in China and in India, where Glaxo has a strong historic presence.
"Prices are being driven up. We are extremely rational in what we pay," Redfern said.
Redfern said Glaxo was open to deals in Latin America, where it feels its market share is rather light.
"It's tough to find targets that are acceptable and line up for all the right financial metrics, but we're certainly not opposed to it. It's even harder in Russia, where there's very few obvious opportunities," he said.
(Reporting by Katie Reid and Bill Berkrot. Additional reporting by Jessica Hall and Ben Hirschler. Editing by Robert MacMillan)