Thomas A. Tóth von Kiskér, longstanding CEO of Tillotts Pharma AG, a specialty pharma player focused on the digestive system, has overseen a number of acquisitions and the growth of the company from 30 to 300 employees. Here, he shares his insights on why M&A may be a better strategy for smaller players than internal R&D and the principles behind Tillotts’ inorganic growth.
For SMEs M&A might be a much better way to build a portfolio quickly and with less risk. With the acquisition of assets, generating revenues, at least the product and the competitive landscape are known and above all income is guaranteed from day one
Thomas A. Tóth von Kiskér, Tillotts Pharma AG
Outlining why Tillotts has gone down the M&A path, Tóth von Kiskér explains that “unless a company has substantial financial capabilities from an IPO or is backed by venture capital or similar, it needs to be of a certain size to not only afford R&D expenses, but also to digest possible R&D failures.” He adds, “For SMEs therefore, M&A might be a much better way to build a portfolio quickly and with less risk. With the acquisition of assets, generating revenues, at least the product and the competitive landscape are known and above all income is guaranteed from day one.”
Outlining the principles that Tillotts follows when assessing potential acquisition targets, Tóth von Kiskér asserts that “Flexibility is fundamental.” He continues, “there are few outstanding opportunities on the market – and those really good opportunities come with a high price-tag. We essentially follow our internal criteria and principles set for external growth and focus on strategic rather than on financial transactions. Our main interest is in assets which are accretive ad which fit strategically with our existing product portfolio.”
For SMEs like Tillotts looking to acquire new assets, Tóth von Kiskér adds that carefully choosing targets in specific niches is crucial. “It is our plan to cover only a few adjacent therapeutic areas. We need to focus and build critical mass, not stretch ourselves across different areas. However, we still maintain flexibility in terms of which new specialty therapeutic area we want to enter and the next asset we acquire might be outside of GI, thereby setting Tillotts’ future strategic direction.”
Moreover, the M&A landscape is becoming increasingly complex, meaning that smaller firms without the vast resources of Big Pharma need to pull together internally towards a common goal to ensure success. “Interest rates have gone down, money is cheap, and opportunities are rare,” laments Tóth von Kiskér. “This means that once you acquire the product, you have to ensure you exploit all possible synergies to recoup your investment. Thus, fast and smooth integration of your acquisition becomes key to deliver success. For that, SMEs need to mobilize all the resources in the entire company, especially each employee, to embrace all the changes that come with such acquisitions.”
Choosing acquisition targets across a range of geographies can also help reduce risk. “we are working in very disruptive environments these days so your business model might not be as sustainable as you think,” warns Tóth von Kiskér. “For instance, China is planning to implement significant price cuts to a wide variety of drugs. So if you bought an asset hoping to capitalize also in the Chinese market but then it gets hit by price cuts or other disruptive events, that is a huge setback. For this reason, I think acquisitions should be geographically as balanced as possible. If you acquire rights for just one market, you are much more exposed to risks.”
