Biotech Deals Used for Pharmaceutical Diversification

June 16, 2012 by  Filed under: Management 

Many major pharmaceuticals have been anticipating significant drops in both revenues and sales due to patent expirations that are anticipated occurring shortly. Once a company’s patents expire, generic alternatives enter the market which lead to a sharp decrease in sales as these generic companies are lean, do not market extensively, and compete primarily through lower prices. Many doctors continue to prescribe the name brand drugs, but major drug producers tend to cut their prices to meet the lower prices of these generic alternatives. Firms attempt to meet the challenges associated with these patent expirations in a variety of ways including by cutting costs and reducing research and development costs, by attempting to develop new drugs internally, through the purchase of external biotech firms, and through attempting to extend patents in various domestic and international locals. Another way to meet the challenges associated with patent expiration is through a diversification of a pharmaceutical company’s business.

Pharmaceutical companies diversify their product lines in a variety of different ways; both through a diversification of drugs that they are offering as well as through a diversification into other lines of business. For example, some pharmaceutical companies sell over-the-counter medications that are off patent as a way of maintaining sales and to offset risks associated with patent expiration. Although these over-the-counter medications do not have the same profit margins that drugs protected by patents have, provide steady sales that do not need to have significant amounts invested into them to maintain sales. Other pharmaceutical companies have diversified into various health and beauty products, while others have diversified by acquiring or developing medical device units which produce medical devices that are used in surgeries.

Other pharmaceuticals tend to diversify by expanding their drug offerings. These firms feel it is best to concentrate on their specialty, the marketing, development, and sales of medications, and they typically diversify by concentrating on acquiring diversified biotech firms to expand their drug offerings or to internally develop new medications for diseases that they have not provided a product for. The easier way to obtain this diversification is through acquisition of a diversified biotech company, although there are often additional costs associated with this strategy. Drugs can also be internally developed as a way of diversification, but often the researchers employed by a pharmaceutical company may not have an expertise in a wide variety of these drug offerings.

Diversification by a pharmaceutical company often provides a more diverse set of revenues that can be used to stabilize a business from patent expiration and other difficulties encountered in the industry. Meeting this challenge through developing new products internally or diversifying internally often provides the stability that management and shareholders crave in a business.

Diversified biotech strategies are important because of the patent expirations that are happening this year; learn more on our websites.

Article Source:

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Prev Post:
Next Post: