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Inorganic Growth Becoming Norm For US Pharma As Endo International Loses Salix Pharmaceuticals, Ltd. (SLXP) To Valeant Pharmaceuticals Intl Inc (VRX) In A $15.8 Billion Deal

The pharmaceutical industry has found a new way to grow and overcome challenges, but the approach raises questions about the future of health care. For the likes of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Pfizer Inc. (NYSE:PFE), growing inorganically, through acquisitions, seems to make more sense that concentrating on individual, in-house, R&D projects.

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) edged out Endo International plc – Ordinary Shares (NASDAQ:ENDP) to close a $15.8 billion, all-cash transaction with Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP). However, this was something strange as the acquisition only further revealed what has come to define the pharmaceutical industry in recent times. Drug companies are pushing more for acquisitions than funneling money to their R&D.

So far, in 2015, more than $59 billion pharma deals have been carried out, about 94% higher than the same period in 2014. In fact, the dollar value in the pharma industry at this point in the year is the highest since at least 2009.

Worrying trend

The norm in life science is beginning to be acquisitions and regulators and attorneys in the sector seem to agree. However, others are concerned and for good reason. There are already worries over the escalation of mergers and acquisition deals in the drug industry. What is happening now is that some companies are concentrating on early stage development projects while giving up on bring their products to market, as they get quickly acquired.

As wonderful as the deals might be in terms of the dollar gains they bring, there are questions about the future of health care, both in the long and short-term outlook.

The landscape in drug development has shifted, thanks to competition and new technologies. At the moment, attention is on the so-called biologics, which are drugs with complicated formulation that cost a lot of money in the market. It is becoming easier for major drug companies to acquire biologics properties than to rely on their in-house R&D departments, or at least they complement their R&D projects with acquisitions.

Cost of developing novel drugs

Some companies are looking at investment in individual R&D as a costly approach, where the cost of developing novel treatments has gone through the roof. It calls for a budget of about $2.5 billion to bring a single novel drug to the market, yet not many drugs live to blockbuster status, which is why buying a drug asset that already has taken shape is preferred in the drug industry today.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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