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What the Top Ten 2009 Pharma Deals Say About 2010

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Expect smaller ones next year.

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Change is the word that defined the pharmaceutical industry for the last year, and 2010 promises to bring quite a bit more of it.

The pharmaceutical industry experienced a whirlwind of reorganization and consolidation in 2009. The world watched as Big Pharma swallowed up some of its major players, as some of the smaller biotechs took their last breath, and as a slew of other companies became part of their larger counterparts' reorganization strategies. But what can the largest deals of 2009 tells us about how 2010 will play out?

The experts at Ernst & Young and PricewaterhouseCoopers (PwC)seem to think that these deals can tell us plenty. Both companies say that the days of mega-mergers -- like the ones that played out in 2009 between Pfizer (PFE) and Wyeth, Merck (MRK) and Schering-Plough, as well as Roche and Genentech -- are long over.

"While possible, we do not expect to see another mega-deal over the next 12 months. We will see continued asset divestitures from those companies working to integrate the large 2009 mergers," said a recent Ernst & Young report.

Meanwhile, the managing director of PwC's health industries strategy and innovation office Chris Wasden says the next year will be a step away from innovation. "The innovation business model for pharma is incredibly broken and we don't think that any of the Big Pharma companies can fix that part of their business," he says. "We see their business models continuing to evolve to look a little more like the medical device industry -- they don't really fancy themselves as innovation engines. They consider themselves inter-niche organizations that have the ability to manufacture efficiently and select technologies that have high potential."

(See Why Big Pharma's 2010 Looks Challenging.)

Wasden sees pharma going outside the traditional mold for new innovations and leaving the progression of technology and drug discovery to places more suited for it, like the academic world. He expects that pharmaceutical companies will now work to sharpen and hone their ability to deal with regulators, distribute products, and connect with the consumer.

"You've seen a handful of organizations that saw getting bigger as a better way to optimize the distribution capability and maybe pick up a few technologies that they can commercialize effectively," says Wasden, "While the others said that they will not be doing big deals, but will be selecting innovations and working out how to distribute them effectively."

In 2009, companies like Bristol-Myers Squibb (BMY) and Eli Lilly (LLY) steered away from large deals to focus on smaller, more focused purchases. Bristol-Myers chief executive James Cornelius has spoken about a "string of pearls" process for acquiring and strengthening the company's product offerings, as the company looks for ways to broaden its pipeline as the Plavix patent expiration approaches. The company paid $2.4 billion in cash for Medarex and its immunological technologies, as a means of strengthening its technology platforms and its cancer pipelines.

Experts agree that investors should expect more consolidation in 2010, but in the form of smaller deals that capitalize on broadening pharmaceutical pipelines and diversifying technology platforms.

This will be good news for the biotech community, which typically considers an IPO the best exit strategy. Yet, as the IPO market continues to falter, biotech will increasingly look to sell their technology and pipelines to larger pharmaceutical companies that need to fill up distribution holes.

Check out the pictures below to see the top 10 pharma deals of 2009 and see what they tell you about how 2010 will play out.


Data for slides was provided by CurrentPartnering, a publisher of business development best practices and deal terms reports. All data was collected prior to November 10, 2009 and is based upon public records.
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