|dc.description.abstract||Since the 2000s, the Pharmaceutical industry has been facing strong challenges: a constantly changing
and increasingly complex regulatory environment, an erosion of margins caused by governmental
pricing pressures and a decrease in Research & Development (R&D) productivity. This complex
environment has hurt the industry’s bottom line, forcing incumbents and new players to reconsider
their approach to the industry’s propelling engine: R&D.
Traditionally, innovation was driven by big pharmaceutical companies allocating an important
amount of their sales on R&D spending. By developing new drugs in-house, these companies were
managing to keep the control over these new drugs and treatments. These innovations were then
protected by patents lasting for a few decades. Once the protection had expired, other players could
enter the market by replicating the drug, driving its prices and hence, its profitability down by as
much as 80%.
In the last decades, the way innovation is being delivered has changed. Rather than big pharmaceutical
firms developing new products, small biotechnological start-ups are responsible for most of the new
discoveries. Their small size forces these players to specialize and focus all their R&D efforts on
specific therapeutic areas. Additionally, these start-ups can attract human capital and talent, but lack
financial muscle to exploit their findings. These conditions set the perfect framework for the increase
of M&A activity with far more potential targets to buy.
Building on this, a new business model has arisen in the industry: Growth Pharma. Among others, its
most important characteristic is the way R&D is conducted. Instead of vast investments to develop
drugs in-house, Growth Pharma companies tend to buy other biotech & pharma companies to acquire
their drug development pipeline. In this way, rather than dealing with the uncertainty of developing
new drugs and facing regulatory risks, these companies acquire other players with drugs in late-stage
The merger of Actavis and Allergan is considered as of 2015 the foremost example of Growth Pharma.
In addition to being the fourth largest deal of all times in the Pharmaceutical industry, its
characteristics make it a unique deal. The story started with an unsuccessful hostile takeover by
Valeant Pharmaceuticals, a company which embraced Growth Pharma under the leadership of Michael
Pearson. Some investors considered Valeant the new Berkshire Hathaway after it partnered in 2014
with Pershing Square, a New York based hedge fund, to do a hostile takeover over Allergan.
Actavis’ friendly takeover of Allergan granted the merged company access to the Top 10 companies
by Enterprise Value within the pharmaceutical industry. Both companies followed different R&D
models: Allergan’s closer to the traditional approach and Actavis opting for the Growth Pharma model.
However, a combination of both companies seemed to bring the best of these two worlds. On one
side, Allergan’s expertise in developing new drugs and block-buster patents such as BOTOX®. On
the other side, Actavis’ best-in-class in pipeline success rate through a spotless record of effectively