Mergers and Acquisitions Have Failed to Build Value for Pharma, Report Finds

April 13, 2011

During the past decade large pharmaceutical companies have pursued an aggressive strategy of mergers and acquisition in an effort to grow their businesses. But an analysis from Burrill & Company suggests the approach has been a failure as these companies have seen the loss of $1 trillion in value during the past decade.

On December 31, 2000 the combined market capitalization of 17 of the industry's most active acquirers was $1.57 trillion, excluding Johnson & Johnson. By December 31, 2010 that figure had shrunk to $1.04 trillion, a loss of more than $500 billion in market value. When the combined value of the acquisitions these companies completed during this time -- $425 billion -- is added, close to a trillion dollars in value has been lost during the last decade, even without taking into account transactions of less than $10 million.

The findings are contained within Biotech 2011-Life Sciences: Looking Back to See Ahead, Burrill & Company's 25th annual report on the biotech industry. The book is now available in print and electronic format at

"The loss of revenue the leading pharmaceutical companies are looking at over the next several years does not just reflect the impact of competition from generic drugs, but also the failure of Big Pharma's research and development to generate innovative products to replace those going off patent," says G. Steven Burrill, CEO of the San Francisco-based merchant bank Burrill & Company. "If the industry is to return to the type of growth it once enjoyed, it must innovate its way out of its current predicament."

Big Pharma's R&D productivity has steadily fallen as the industry continues to produce roughly the same number of new drugs each year despite a steady increase in R&D investment. At the same time, smaller companies have produced a growing share of new drugs and done so more cost effectively.

Pharmaceutical companies today are pursuing acquisitions of innovative biotech products and companies, but are now taking steps to leave in place the culture of these companies to protect the innovation they covet. In other instances, Big Pharma is seeking to emulate biotechs through new R&D models that create small, focused, independent research units that operate much like biotechs.

This is one of the many issues explored in Biotech 2011-Life Sciences: Looking Back to See Ahead. Other sections of the book consider healthcare reform, the transformation to personalized medicine, regulation and policy reshaping the industry, development in industrial and agricultural biotechnology, the changing financing environment, and the growing importance of emerging economies within the industry.