- Divesting non-core assets is a tactic creeping more and more to the forefront of drugmakers' minds, according to a study released earlier this year from EY, a consulting and accounting firm.
- The interest stems from a handful of factors, including pricing pressures, the growing negotiating power of payers and a loss of firepower, which have been shaping trends in biopharma over the last few years.
- "This new era of health care requires life sciences businesses to adapt their business models, making it more challenging to compete across a diverse set of therapeutic areas," the report said. "Businesses are, therefore, considering strategies to narrow their portfolio to drive scale and leadership in a focused set of therapeutic areas."
To compile the study, EY conducted interviews between October and December 2016 with northwards of 900 executives, 78% of which were at the c-suite level. The higher ups spanned across nine industries, with 183 coming from the life sciences sector.
Overall, nearly two-fifths of companies plan to divest assets in the next two years and the number of executives reporting interest in divestitures has grown. Biotech and pharma leaders, in particular, are eyeing sales, with 71% saying there were considering such a move.
The survey found one of the strategies companies are more and more focused on is the use of milestone payments when inking deals. Among life science businesses, 87% said they would consider contingent compensation when divesting. R&D, commercial and regulatory milestone agreements captured interest from 60%, 52% and 51%, respectively, of life science executives, up from 50%, 35% and 40% in 2015.
Also noteworthy was the number of life science executives who said they were actively looking to sell off pipeline candidates. The share more than tripled from 9% last year to 28% in 2016.
Based on the responses, EY concluded too many businesses — around 40% — weren't separating business areas targeted for divestiture operationally from the core company before the sale. Of those businesses, 32% said such an action would have helped the process.
EY also found M&A can gum up how well a company functions following an asset sale.
"Often the different business units have been partially, but not completely, integrated," the report said. "This process creates a complex web of interconnections, disparate systems, separate but related manufacturing units and intellectual property, and drug development and R&D functions spread across different regions."
"As a result, operationally separating a business becomes far more challenging in life sciences than in many other sectors," the report added.