In an article titled “Drug Industry Is Ripe for a Wave of Deals”, The Wall Street Journal has predicted that the big pharma companies are going to acquire smaller biotech firms to be able to increase profits. The drug industry has been using a price hike to expand on profits in the past, but that may not be enough to boost earnings this year; mergers have the potential to help pharmaceutical companies expand their portfolios, which can help them earn more revenue.
Well, the prediction is real: The big pharmaceutical companies are already acquiring smaller biopharma firms to tap into their research and product innovation. Most analysts are bullish on biopharma stocks with mergers worth more than $25 billion already in place in the first four months of 2018.
The biopharmaceutical industry has been on a roll over the last few years. In 2014, Mckinsey&Company reported that biopharma companies glean global revenues of $163 billion, which is around 20% of the total pharmaceutical market. This growth has continued over the years and, it appears, will stay that way with more mergers expected in 2018.
The big pharma companies can put a higher price for products created with biopharma technology because they are effective and have minimal side effects as an increasing number of consumers prefer naturally-derived medicines over synthetic ones. These mergers will be beneficial for biopharma companies too as they can use the resources of large-cap companies to conduct more research and make more life-altering discoveries.