The deals partly reflect a push by the pharmaceutical industry to boost sales and cut costs as drugmakers look for ways to return to the growth investors have come to expect after the bullish last two decades, when they continually churned out new blockbusters, drugs with annual sales of more than a billion dollars.
Most drugmakers have since seen revenue flatline or even dip as a tidal wave of cheaper generic competition to former blockbuster pills over the past few years wiped out billions of dollars in annual revenue. Others see the wave coming—Novartis, for instance, it is awaiting generic competition to its blockbuster blood-pressure drug Diovan—and are trying to lessen the impact.
At the same time, research to develop new medicines to replace lost income is ever more difficult and expensive. Mergers and acquisitions give them additional sources of revenue and new ways to cut costs and become more efficient while they wait for drugs in their research pipeline to win approval.
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Most of the spurt of mergers and acquisitions are meant to narrow the drugmaker's focus, a strategy that's in vogue now, partly due to pressure from analysts and investors. The pharmaceutical industry tends to cycle back and forth every several years between periods where most companies are divesting to focus on their core areas, or diversifying by snapping up other types of drugs or related businesses.
"Wall Street has been rewarding more-focused companies" with higher share prices, said Les Funtleyder, a consulting partner at healthcare investing firm BlueCloud Healthcare. "You see one company doing something and others feel like they have to make a strategic response."
Eric Gordon, an analyst and professor at the University of Michigan's Ross School of Business, said the industry is rearranging, with companies reducing the number of diseases they're attacking and divesting noncore businesses to others stronger in those fields.