Cambridge could benefit from strategic sea change
Charles le Strange Meakin, technology partner at KPMG in Cambridge, looks at why 2014 could be a bumper year for mergers and acquisitions across the life sciences industry as corporates seek to take advantage of new technologies and innovation.
Last year the big players in the life sciences sector conducted root and branch portfolio reviews of their organisations. Certainly the larger corporates have taken a close look at their strategies over the last 12 months, leading them to divest of non-core parts of their business – the sale of the Ribena and Lucozade brands by GSK being a prime example.
There has also been a reassessment of strategy around where R & D money should be allocated to ensure the largest return on investment and over the next 12 months I believe the continuation of this trend will lead to increased specialisation around a smaller number of therapeutic agents.
Where companies don’t have strengths in these areas the obvious option for them is to divest, partner or enter into joint venture arrangements, which could be great news for Cambridge and its thriving biotech sector.
Many acquisitions are likely to occur where companies are seeking opportunistic add-ons to their core business. Indeed, we’re already seeing evidence of companies making strategic plays to bolster their existing portfolios, such as Bayer making a $2.4bn bid for prostate cancer drugmaker Algeta.
Whilst Private Equity remains reasonably risk averse, I expect them to be operating at the fringes where they feel the risks are more controllable. The volume of new innovations and discoveries in the smaller biotech start ups that this region is renowned for is quite high currently, but as this is often perceived as a risky area of development, unless it is funded by government through academic institutions, activity is unfortunately less likely here.
As such, innovation and growth in the sector is still concentrated in a few countries with a critical mass of science bases to fund this, such as the UK, US and Germany.
Cambridge has traditionally been recognised as home to one of the best universities in the world. But it is now starting to forge a global reputation for its clutch of tech start-ups in sectors like semiconductors and biotech which are back in vogue with investors. The reasons behind this include an increased interest in heavy-duty technology that’s more difficult to replicate than the social media and e-commerce ideas coming out of other tech hubs in the UK.
Investors are increasingly being attracted to the type of companies that are here in Cambridge which have deep invention behind them, serious intellectual property and, unlike many consumer-facing tech startup companies, a strong and defensible business model.