Research & Development (R&D) is the engine of innovation in the pharmaceutical sector. It’s within the labs of companies that groundbreaking treatments are often discovered, cures are conceived, and drugs are developed. Yet various factors have helped contribute to the growing complexity of R&D in recent years, including escalating costs, delays in clinical development, and patent expirations of existing pipelines, prompting many companies to think outside the box.

The primary appeal for an acquisition is the immediate access to a portfolio of therapies that have already undergone significant scientific development, thereby bypassing the lengthy R&D process, utilizing existing clinical network relationships, and accelerating the time to market and revenue generation. This access to established assets is a remarkable opportunity for the pharma sector, and coupled with the mitigated risk and diversification potential, is a highly lucrative business model.

Further, the parent company is often able to dedicate financial resources, existing market access and distribution channels, regulatory expertise, operational scale, and strategic leadership, accelerating the drug development process.

Pfizer: A Case Study

Pfizer’s acquisition of Warner Lambert in 2000 remains the most valuable M&A transaction in healthcare to this day. For nearly $90 billion USD, Pfizer’s acquisition helped it claim the title as the world’s second-largest drug company, at the time, and full shares of profits from key drugs, including Lipitor, a high cholesterol stain that continues to generate over $2 billion USD annually in sales, even following patent expiration.

More recently, Pfizer acquired Wyeth for roughly $70 billion USD, helping Pfizer diversify its pipeline in Alzheimer’s, inflammation, and oncology.

In its own words, Pfizer reported, “The combined company will have product offerings in numerous growing therapeutic areas, a strong product pipeline, leading scientific and manufacturing capabilities, and a premier global footprint in health care.”

In both of these cases, Pfizer leveraged the target company’s existing, patent-protected pipelines to diversify and grow its own pipeline, while mitigating the risk of researching drugs that might not work.

Implications

The overemphasis on acquisitions, however, raises key questions and ethical concerns regarding access to essential medicines and healthcare disparities. Pharmaceutical companies, now more than ever, have a moral imperative that transcends profit margins: to prioritize more affordable and accessible treatments.

Large companies that acquire and control a significant share of a given market wield immense power to dictate prices and control access, undermining consumer choice and deterring potential competition. Further, the process discourages the development of generic alternatives.

Following an acquisition, companies often file for patent extensions and engage in patent litigation to delay generic entry, often accomplished through settlements with the generic manufacturer. Companies also use many strategies to extend the protection of their patents and prolonging their market exclusivity, including minor modifications to existing approved drugs (Patent Evergreening) and filing for additional patents (covering different aspects of the medication) and secondary patents (covering the active ingredient, dosing regimens, methods of administration, or secondary formulations). Additionally, drugs treating rare or pediatric diseases are given extended exclusivity.

Consequently, the growing number of acquisitions is raising concerns in D.C., particularly involving antitrust. Given that maintaining competition in the pharmaceutical industry is directly associated with controlling healthcare costs and innovation, M&A in pharma is a critical issue for policymakers, researchers, hospitals, and patients globally.