M&A's in Pharma

7/29/2019 M&A's in Pharma

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IVth Year B. Pharm + M.B.A (Pharma. Tech.)

Trimester XII (Section A & B)

Unit no. 10, Pharma Industry TrendsApril, 2012

Module 10 A

Mergers & Acquisitionsin Pharmaceuticals


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Involves the combination of all the assets, liability,loans and businesses (on a going concern basis) of two(or more) companies such that one of them survives

Merger is primarily a strategy of inorganic growth Two firms agree to go forward

as a single new company ratherthan remain separately ownedand operated : a "merger ofequals"

The firms are often of aboutthe same size

Both companies' stocks aresurrendered and new company

stock is issued in its place


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In practice, however, actual mergers of equals don'thappen very often.

Usually, one company will buy another and, as part of

the deal's terms, simply allow the acquired firm toproclaim that the action is a merger of equals, even ifit is technically an acquisition.

Being bought out often carries negative connotations;therefore, by describing the deal euphemistically as amerger, deal makers and top managers try to makethe takeover more palatable.


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1996 By December, Ciba-Geigy, Ltd. and Sandoz Ltd. merged to formNovartis AG. With this merger, Novartis AG became one of thelargest pharmaceutical companies in the world.

2003 Novartis Generics group of businesses rebrands all globalcompanies under one name, Sandoz. Geneva Pharmaceuticalsbegins its rebranding efforts, operating under the Sandoz nameand creating a worldwide network of resources for genericpharmaceutical production and marketing. On December 1,Geneva officially became Sandoz. The company has more than1,300 employees.

CIBA-Geigy


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Both firms ceased toexist when they mergedMerged

1989

SmithKlineBeckman

Merged

acquired

1995

2000Both firms ceased toexist when they merged


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December, 2010, multinational FMCG giantReckitt Benckiser acquired Paras Pharmaceuticals

for Rs.3,260 crore. (US $ 724 mio.)


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Improvevaluation

The benefits of a greater focus to each of the businesses does get reflected inthe market and it is possible to realize the actual value of each business.Example:

1. The combined market capitalization of Sun Pharma

and its demerged R&D firm SPARC 10 to 15 per cent

higherthan the market capitalization of Sun Pharmasince SPARC listed in July 2007

2. Demerger of Dabur India comprised of

- The FMCG business including personal care,

healthcare and ayurvedic specialty products

- The pharmaceuticals business which includeallopathic, oncology formulations and bulk drugs.

Demerger to create a global presence forDaburs pharmaceuticals business andprovide focus to maximise penetration in global markets.

For the FMCG business: Better and more efficient management of its resources andfacilitate more accurate benchmarking with industry which lead to improvement invaluations for both businesses


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It is an agreement in which 2 or more

companies (JV Partners) contribute to the equity capital ofa new Company in a pre-decided proportion.

Normally joint ventures are formed to pool the resources of

the partners and carry out a specific project beneficial to

both the partners but which none of the partners wants to

carry out under its own corporate entity for any one of thegiven reasons:

1. The JV may be highly risky with unpredictable result eg. oil

exploration

2. JV partners may be competitors but want to collaborate for a

specific project or business3. Neither of the partners may be interested in diluting control over

their businesses by accepting funding

4. To ensure that the management control of the common business

or project is shared in the agreed proportion through a charter

of the JV company

5. Rewards of the common business are shared in the pre-

determined ratio (rule out manipulation by either side)


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To increase market share

To gain control of a blockbusterdrug existing or potential

To gain entry into a high growththerapeutic area

To enhance R&D productivity

Access to new technology platform

Management efficiency


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Company Targetcompany

Year Deal $ Billion

Novartis (CibaGeigy)

Sandoz 1996 26

Astra Zeneca 1999 35

Pfizer WernerLambert

2000 90 Lipitor

GSK(Glaxo

Wellcome)

Smith KlineFrench

2000 55

Pfizer Pharmacia 2003 57 Celebrex

Sanofi Aventis(Sanofi)

Aventis 2004 62


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*

Company Target company $ billion Technology/product

Pfizer Wyeth 68 Prevnar, Enbrel

PharmaceuticalsMerckBayer

Schering PloughSchering

4119.7

PharmaceuticalsPharmaceuticals

Schering Plough Organon 14.5 Pharmaceuticals

Takeda Nycomed 13.6 Pentaprazole, Daxas/Daliresp

Gilead Pharmasset 11 Hepatitis C

Sankyo Daiichi 7.7 Pharmaceuticals

Abbott Solvay 7

Tricor, Trilipix, vaccines

Nycomed Atlanta 6 Protonix

UCB Schwartz 5.8 Pharmaceuticals

AbbottKos 3.7

Humira, Niaspan

Abbott Piramal 3.7 Generics

GSK Steifel 3.6 Dermatology

Pfizer King 3.6 Analgesics

Shire New River Pharma 2.6 Pharmaceuticals

Dainippon SumitomoSepracor 2.6

Lunesta, Xopenex

Lilly Icos 2.3 Cialis

Dainippon Sumitomo 2.1 Pharmaceuticals

Toyama Fujifilm, Taisho 1.4 Pharmaceuticals

GSK Reliant Pharma 1.65 Pharmaceuticals

Solvay Fournier 1.4 Pharmaceuticals

Teva Taiyo 1.2 Pharmaceuticals

Forest Clinical Data 1.2 PharmaceuticalsShionogi Sciele 1.1 Pharmaceuticals

J&J Cougar 1.0 Cancer drugs


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Novartis Alcon 39 in 200928 in 2010

Eye care

Boston Scientific Guidant 27.5 Medical Devices

Johnson & Johnson Synthes 21.3 Orthopedic

GE HealthcareLife Sci Technol

Abbott diagnosticApplied Biosyst

8.16.7

DiagnosticDNA sequencing

Merck KGA Millipore 6.0 Equipment

Danaher Beckman Coulter 5.9 devices, equipment

Fresenius Renal Care 4 Dialysis

Fresenius APP Pharm 3.7 Abraxane (Nanotech)

Roche Ventana 3.4 Diagnosis

Blackstone Cardinal health 3.3 Healthcare

Endo American Medical System 2.9 Urology. Pain

Abbott Advanced Medical 2.8 Eye Care, Lasik

Kinetics Concepts LifeCell 1.7

Quagen Digene 1.6 Diagnostic

Charles River WuXi Pharma 1.6 Drug testing

Endo Qualitytest 1.2

J&J Mentor 1.03

GE HealthVital SignsWhatman

0.860.71


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J&J Pfizer OTC 16.6 Consumer health

Teva Barr-Pliva 7.5 Generics

Teva Ivax 7.4 Generics

Novartis Eon 6.8 Generics

Mylan Merck KGA generic 6.7 Generics

Novartis Hexal 5.3 Generics

Teva Ratiopharm 5.0 Generics

Daiichi Sankyo Ranbaxy 4.0 Generics

Teva Sicor 3.4 Biosimilars

Sanofi Aventis Zantiva 2.6 Generics

Barr Pliva 2.5 Generics

Reckitt Benckiser Adams respiratory 2.3 Generics

Sanofi Aventis Chattem 1.9 Consumer health

Watson Andrx 1.9 Generics

Watson Arrow 1.75 Generic Lipitor

King Alpharma 1.6 Generics

Richter Gedeon Polypharma 1.3 Generics

Novartis Ebewe 1.3 Generics


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Company Target company $ billion Technology/productRoche Genentech 47 Rituxan, Avastin,

Herceptin, MoAbs,Oncology

SanofiAventis

Genzyme 20Orphan biologicsCerezyme, Fabrazyme,Renagel, Synvisc

AstraZeneca MedImmune 15.6 Monoclonal AntibodiesMerck Serono 13.5 Biologics

Takeda Millennium 8.8 Velcade, Oncology

Lilly ImClone 6.0 Erbitux, Oncology

Novartis Chiron 5.8 Vaccines

Teva Cephalon6.2

Nuvigil, Provigil,Treanda

CNS, Oncology

Abraxis American BioScience 4.2 Oncology

Astellas OSI Pharma 4.0 Tarceva, oncology

Eisai MGI Pharma 3.9 Aloxi, Salagen, Hexalen,Oncology


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*India will break into top 10 pharma markets in the world by2015.

*Increasing spending on Healthcare will drive the MNCs to lookfor Indian presence.

*Indian companies do not have the capital & expertiserequired for new drug development.

*At the same time form the point of view of MNCs, with thedrying up of the R & D productivity in the US and theDeveloped markets and their search for other sources ofinnovation, acquisitions are a cost-effective way to bring in aportfolio of branded generics.


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Change in themindset of MNC as

well as Indian

Promoters

1) New Patent Regime

2) Challenges faced bygeneric cos. in

regulated markets

3) Robust valuationoffered by MNCs


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Entered

Pharma by

acquiring

Nicholas

Laboratoriesin1988

for Rs. 20


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*Revenues and profits due to the fall produced by PatentCliff

*Presence of strong portfolio of brands which are ranked amongst the top

in their respective segments.

*Strong generics portfolio with presence in high growth/ high margintherapeutic categories like CVS, CNS, Oncology and anti diabetes.

*Availability of infrastructure to cater to regulated markets. This will

enable them to act as a manufacturing base to meet the demand for

regulated markets.

*Presence in niche segments like vaccines, biotech, nutraceuticals, OTC

etc which has substantial growth potential both in India as well as

Globally.


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*Patent cliff: the total value of patentsexpiring between 2010 and 2015 is

expected to reach U.S $100 billions.

*Expanding market is one of the

strategies to maintain the flow of

revenue.

*India with high population and

growing market, is attracting MNCs

to invest in India.


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*

*Manufacturing prowess and cost competitivenessof Indian companies(highest no of USFDA

approved plants outside U.S)* See chart on next

page

*Geographical expansion

*Emerging markets- Future growth drivers

*Overcome barriers to entry


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0

50

100

150

US EUROPE INDIA

Percentage overall indexed

manufacturing cost (USFDA approvedplants) cost

*

*Cost efficiency : India rates higher than other countrieson cost efficiency

Source : Taking wings, E&Y,2009


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*

DATE TARGET ACQUIRER DEAL VALUE($MN)

MAY 2010 Piramal Abbott 3,720

JUNE 2008 Ranbaxy Daiichi Sankyo 4,538.5

MARCH 2009 Matrix Mylan 738

DEC 2010 Paras Reckitt Benckiser 720

JULY 2009 Shantha Sanofi Aventis 625.18

DEC 2009 Orchid Hospira 400.0

APR 2008 Dabur Frenesius kabi 220.0

Source : Datamonitor


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*What it means for Abbott ?

*Rights to 350 brands and trademarks of generics, includingPhensedyl cough syrup.

*Market share close to 7%

*Strong presence in India (Growth rate 13-17%)

*Complete product portfolio

At $3.72bn (Rs 17,500 Crore), its the secondlargest pharma deal in India after the 19,780crore

Daiichi-Ranbaxy deal in 2008


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*

The Piramal Group has agreed that for eight yearsafter the deals closing, it will not enter the

business of generics pharmaceuticals in India, ormake or market them in emerging markets.

Abbott became market leader with the acquisitionof Piramal with approx 7% market share


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The Big Deal ABBOTT+PIRAMAL

USA

ABBOTT

LABORATORIESUSA

ABBOTTHEALTHCARE PVT

LTD.

PUBLIC SHAREHOLDER

PIRAMAL GROUP(PROMOTER

GROUP)

PIRAMALHEALTHCARE

LTD.

FORMULATIONBUSINESS

INDIA

100%

BUSINESSTRANSFER

47.9%

52.10%

CashUSD

3.72bn


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The Big Deal ABBOTT+PIRAMALBrief snapshot

Acquirer Abbott Healthcare private limited , India

Seller Piramal healthcare LTD India .

Asset acquired Domestic formulation business including mass market,

which manufactures, markets and sells brandedpharmaceutical product in finished form.

Mode ofacquisition

Business transfer of the formulation business intoAPHL as a going concern.

Consideration USD 3.72bnUpfront payment (USD 2.12 bn)Future payment :-USD 400 mn payable upon each ofthe subsequent four anniversaries of the closingcommencing in 2011.

Mode of funding Cash on the balance sheet of AHPL.


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The Big Deal ABBOTT+PIRAMALPiramal overview

*A leader in the branded generics market .

*Strong brand equity & presence in the key areas :

Antibiotic, respiratory ,cardio vascular, pain andneurosciences.

*350 branded generics products.

*Significant local foot print-largest sales force in India .

*One of the largest formulation plants in India


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*Piramal markets the products in its Healthcare Solutionsbusiness in India only and does not market traditional genericproducts.

*Today, branded generics account for 25 percent of the globalpharmaceutical market, have the majority of market share inthe largest emerging markets, and are expected to outpacegrowth of patented and generic products.

*The Mumbai-based Piramal Healthcare Solutions business has

a comprehensive portfolio of branded generics with annualsales expected to exceed $500 million next year in India, andmarket-leading brands in multiple therapeutic areas,including antibiotics, respiratory, cardiovascular, pain andneuroscience.

*This business grew 23 percent in 2010 (fiscal year endedMarch 31, 2010), faster than the market in India.


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Further diversifiedsource ofpharmaceutical

growth.

Abbott will become no.1 in

India ~20% annual growth

over next several years.

Piramal to add >$500Mn in

2011sales in India.

Total Abbott pharma sales

expected to exceed $ 2.5bn

by 2020 in India .


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*It met the win-win proposition for both parties.

* Piramal got very high valuation.

* Abbott got quick market reach.

M A R K E T I N G S Y N E R G Y :

*With Piramal, Abbott can leverage the combined sales force of7,000 and gain access to tier-3 towns where it was not present.

*Piramals extensive distribution network and field force was

undoubtedly one of the most priced asset for Abbott.


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Synergies

*

Revenue Generation

Cost Reduction


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*On a TV show, talking to Anil Singhvi and Menaka Doshi soon afterthe announcement of the deal, Ajay Piramal gave three reasons:

a. 45% of the business stays with Piramal Healthcare.

b. Money thats now coming can be used to retire some Rs 1,300

crores in debt.

c. It will also provide funds for expanding the existing businesses

and for undertaking new businesses.


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*He bought 5.5% stake in Vodafone,India.

*He diversified into Diagnostics business, with his OTCbusiness in place.

*He strengthened Lifesciences division(more of a tool tosave tax).

*He also catered into real estate business.

*Yesterday he bought Buyers molecular imaging facility

to help NCE research


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Establish a leadingpresence in branded

generics

Piramal portfolio has 350leading branded generics inmultiple therapeutic areas.

Solvay and Piramal giveAbbott a critical mass and a

comprehensive leading

branded generics portfolio.


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Deliver sustained double-digit EPS growth

Abbott expected 20 %Piramal sales growth over the

next 5 years.

They expected transaction tobe neutral to the EPS over

the next several years,

accretive thereafter.


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Globally there is a new way of sellingpatented drugs, which we would not havebeen able to do on our own. So, as a part of

the future strategy, we took this decision.Also, at almost 9.5 times the sales, it is in thebest interest of our shareholders

-Ajay Piramal, Chairman, Piramal Group.


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