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As M&A Costs Rise, New Accenture Report Offers Alternative Strategies

Biopharmaceutical companies may want to pause before pursuing their next acquisition. Costs are rising and potential returns are shrinking, according to a report released in late June by accounting and consulting firm Accenture.

Other growth strategies, however, may prove more promising in the coming years, notes the report, which predicts that companies will begin to shift strategies.

“From changing trends in partnerships to new thinking models needed to support acquisitions, we are deeply entrenched in a time of transformation for the life sciences industry,” the report authors wrote.

Mergers and acquisitions have long reigned as the growth strategy of choice for the top 30 biopharmaceutical companies, according to Accenture’s report, titled “Scientific Innovations for More Sustainable Growth.” In fact, over the past 15 years, acquisitions have delivered 60% of companies’ marketed assets.

However, several factors threaten the sustainability of the M&A approach, the report says. Acquisitions, for example, are becoming increasingly expensive due to record premiums for biotech deals. For deals valued over $500 million, Accenture said the premium takeaway was 71% in 2021, up from 51% in 2018. The company attributed the increase to the growing amount of venture capital funding poured into biotechnology companies.

“According to the biopharma executives we interviewed, creating value from late-stage asset acquisitions has become nearly impossible due to record deal premiums in 2021,” the authors wrote.

At the same time, biopharmaceutical companies face pressure on profit margins, which undermines their ability to pay for acquisitions, according to the report.

The stock market, meanwhile, has tended to frown on the traditional approach to mergers and acquisitions, based on analysis from Accenture. The firm found that traditional trading had a negative short-term impact on stock prices relative to the general market.

To determine trends, Accenture has divided inorganic growth approaches into four pathways: builder, architect, ecosystem, and controller.

The builder path, which refers to traditional late-stage acquisitions, was the most common, accounting for 36% of deals between 2010 and 2021. Behind, at 34%, is the architect path, which refers to late-stage acquisitions. active at an early stage. An example cited by Accenture is the purchase of Translate Bio by Sanofi for $3.2 billion.

Accenture expects companies to continue to pursue agreements under the architecture pathway. But this strategy can change. Instead of focusing on early-stage assets, buyers can seek access to platform technologies. Examples include Pfizer’s $300 million deal giving it access to Beam Therapeutics and in vivo base-editing research for rare genetic diseases of the liver, muscle and central nervous system, according to Accenture.

The company also sees promise in the ecosystem pathway, which covers acquisitions of know-how and capabilities to accelerate innovation or reach customers in new ways. Examples cited by Accenture include analytics, artificial intelligence and new devices.

Between 2010 and 2021, ecosystem agreements accounted for 16% of the total number but only 1% of the value of agreements, Accenture said. However, the company said, an ecosystem agreement was one of the biggest deals announced ahead of the JP Morgan Healthcare conference in January 2022: the collaboration between Sanofi and Exscientia, a drug discovery company based on the AI.

Ecosystem deals also provide the biggest short-term bounce in stock prices, according to Accenture’s analysis.

Controller agreements — which refer to those entered into for the purposes of geographic expansion or vertical integration — could also grow, especially as biopharmaceutical companies seek growth in China, Accenture said.

Biopharmaceutical companies rely on a combination of all four pathways, with the combination varying by company age and size. Small, high-growth companies are more likely to seek contracts with architects, Accenture found.

Concluding its report, Accenture recommended a series of actions largely focused on architect and ecosystem contracts. Recommendations included combining biotech platforms and capabilities to create value; develop a corporate culture that can adapt to multiple platforms; and creating an internal team to ensure efficient use of resources across therapeutic areas.

“Similar to a venture capital operating model, this team would incubate new science and technology while evaluating and managing various S&T (science and technology) collaborations that provide access to experts, skills, capabilities and relationships,” wrote the authors of the report.

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