By Baltazar Gomez --
The biotech industry needs lots of capital for research, new product development, and lots of funds for daily operations. The current trend of mergers and acquisitions in the biotech industry arises in order to satisfy the needs of the industry. Many biotech firms have promising technologies and low stock prices, making such firms excellent takeover candidates. For large firms, mergers address excess capacity resulting from anticipated patent expirations and gaps in product pipelines. For small firms, mergers are excellent exit strategies and opportunities to have access to larger markets and more money.
An article by Katie Weeks of the San Diego Business Journal explores mergers and acquisitions from the perspective of investors (see "Mergers, Acquisitions Leading 'Exit Strategy' For Biotech Companies"). Investors and biotech companies favor mergers and acquisitions over initial public offerings (IPO) because this is a way to gain value quickly. Consequently, the number of IPO's have declined in recent years. The decline is partly due to the increasing interest by large pharmaceutical companies to acquire new products through mergers, rather than to develop products from ground zero. The incentive to acquire new products comes from the urgent need to have backup revenue as old products go off patents. Thus, private biotech companies opt to merge with large pharmaceutical companies to take advantage of biotech's innovative treasure chest to fill the drug pipelines of the large pharmaceutical companies.
For additional information on this topic, please see:
- "Biotech IPO's Down?" March 1, 2007
- "Biotech Acquisitions Up, IPO's Down," February 27, 2007
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Posted by: Mergers & Acquisitions Articles | January 24, 2008 at 11:14 PM