Big Pharma companies are working to fill their pipelines and offset billions in revenue losses from mass patent expirations. After years of M&A hesitancy and sluggish IPOs, the market is back on the upswing. But while acquisitions and IPOs are rising, many drugmakers aren’t positioned to take advantage of opportunities in an increasingly competitive market, said Findley Gillespie, a principal at Baker Tilly. As a result, they could leave money on the table or see deals slip away entirely.
Deal talks can quickly morph into diligence processes. Companies that aren’t ready for that rapid transition can find themselves playing catch up.
“There's really two reasons that companies will either lose a deal or lose value. The first one is they're too slow, and the second is a loss of confidence,” Gillespie said.
Speed has become crucial because buyers have options and will often move on if a company isn’t prepared. In some instances, funding might also be at risk if the deal doesn’t progress fast enough.
Special purpose acquisition companies, which are created to raise capital through an IPO to acquire or merge with another entity, typically have to close the deal or return the money by 18 to 24 months from their own IPO, he said.
Similarly, companies that haven’t gone through a recent audit or taken the time to clean up their financials could be at a disadvantage. If internal numbers aren’t solid and company leaders need to update figures, the delay can spook investors.
“When there is a loss of confidence in the numbers, that corresponds to a lessening of confidence in the company,” Gillespie said.
Getting deal-ready
Preparing ahead of time for an acquisition or potential IPO can pay dividends. Much of this work should focus on organizing key documents and details since missing information can slow down the process. For example, one company that Gillespie worked with failed to maintain its capitalization table, which outlines company ownership and equity. Gillespie recalled having to reconstruct the table by combing through years of company meeting minutes.
“That’s a six-month delay right there, potentially,” he said.
Readiness also extends beyond the transaction itself. Drugmakers preparing for an IPO also need to function as a public company going forward, he said — a shift that can require substantial changes.
On the scientific side, pharmas can position themselves for business opportunities by sharpening their company’s narrative and ensuring clean intellectual property rights, Gillespie said. IP-related issues that surface mid-deal can complicate or stall negotiations.
Companies will be in a far better position to win deals if they start that process early, he said. And creating a clear picture that the company is worth the investment is crucial.
“Investors want to see that there is a path to commercialization,” Gillespie said.
