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‘Pharmerging’ Markets Report: Dealing With Uncertainty.

12 March, 2015

 

Executives in the life sciences industry reveal their key concerns in cross-border acquisitions in pharmerging markets.

 

A recently published Baker & McKenzie report shows that global pharmaceutical companies continue to set their sights on emerging markets, but are cognizant of the challenges these markets can present.

 

From 2012 to 2017, global pharmaceutical sales are expected to rise 13% in “pharmerging markets,” compared to just 2% for the top mature markets, such as the US, according to the IMS Institute for Healthcare Informatics.

 

Key growth markets include China (16.1%, valued at USD 100.6bn), India (13%, valued at USD 17bn) and Venezuela (56.4%, valued at USD 15.3bn). Businesses are attracted to these pharmerging markets for a number of reasons, explains Jane Hobson, head of Baker & McKenzie’s global life sciences industry group.

 

“Many governments in these markets are making large investments in healthcare, such as the Chinese government’s announcement in 2009 that it would spend USD 124bn over 10 years to expand healthcare coverage for its 1.3bn citizens and invest in projects such as upgrading and constructing new hospitals and health clinics in areas ranging from urban centers to remote villages.”

 

With multiple challenges facing the global healthcare industry, many major drug companies have been turning to acquisitions and licensing transactions over R&D investment to grow their profit margins and boost share value. In fact, 2014 was a record-breaking year for M&A in the healthcare sector, with deal values reaching USD 363bn, 94% higher than those in 2013. Of those deals, USD 178bn – almost 50% – were cross-border transactions involving buyers acquiring target companies or assets in countries outside their local markets.

 

But while investing in pharmerging economies can bring significant benefits, it is not without challenges. Not surprisingly, life sciences executives sited compliance and regulatory challenges as the two areas which cause the most concern and can be detrimental to business if not managed properly.  The Baker & McKenzie report, ‘Dealing with Uncertainty‘ therefore sets out a number of recommendations on how to plan for these challenges and handle them appropriately.

 

In China, for example, Tracy Wut, Co-Chair of Baker & McKenzie’s Global Life Sciences Industry Group explains, “A lot of domestic companies don’t have robust corporate compliance programs or they may have policies but they’re not closely monitoring or strictly enforcing them. The buyer may need to educate the target’s management on the importance of compliance from the start, and target problem areas quickly.”

 

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On the issue of regulatory challenges, Tracy further explains that firms are capable of overcoming these barriers with support, “What my specialized team has done to expedite regulatory approvals in China is to mobilize the client’s local government relations team to lobby government officials. It can be very effective in explaining the importance of the deal.”

 

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In spite of these difficulties, Jane Hobson says that transactional success can be achieved through forward planning, “The best strategy for dealing with M&A challenges in pharmerging markets is to analyze the compliance risks and regulatory hurdles early, address the most pressing issues, make the best commercial decisions you can with the information you have, and be prepared for changes.”

 

This report, ‘Dealing with Uncertainty; Strategies for overcoming compliance risk and regulatory challenges in cross-border M&A’ is part of the leading global firm’s ‘Going Global’ campaign, looks at strategy and execution of cross border M&A in the pharmaceutical industry.

 

You can read the full report here.

 

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