Pharma mergers and acquisitions in 2009
pharmafile | December 22, 2009 | Feature | Research and Development, Sales and Marketing | Abbott, GSK, J&J, JJ, M&A, MA, Novartis, Pfizer, Wyeth, generics, industry, merger, year in review
This year saw two ‘mega mergers’ in the sector, the acquisition of Wyeth by Pfizer and the reverse takeover of Schering-Plough by Merck.
A third major acquisition was Roche’s move to gain full control of Genentech, which it had previously maintained as a largely autonomous majority-owned business.
Pfizer’s $62 billion buy out of Wyeth was the third largest ever in the sector, behind its own $89bn acquisition of Warner Lambert in 1999 and the $79bn GlaxoSmithKline merger of 2000.
The sector hadn’t seen a deal on this scale since Sanofi acquired Aventis for 54.5 bn euros ($66.5bn) in 2004, a five-year break which reflected a growing orthodoxy in the sector that mega mergers don’t work.
But the Pfizer merger was certainly welcomed in some quarters, particularly as it had significance beyond the pharma sector. When the takeover was announced in January, the US and global economy was still looking bleak, and bank lending had not yet bounced back after the credit crunch.
Pfizer raised a third of the total takeover sum by lending from banks, thus the company’s chief executive Jeffrey Kindler could say: “This is a very positive sign for the American economy and American business, and shows that the banks are doing what they are supposed to be doing.”
Kindler defended the merger by saying it was unlike others because it was not focused on a single product or on cost cutting – nevertheless, these remained important factors. Pfizer’s flagship product Lipitor will go off patent in 2011, which will mean billions of dollars of lost revenue.
Lipitor’s $13.5bn revenues in 2007 accounted for nearly a third of its total income, and about 40% of its profit.
Pfizer says the Wyeth acquisition will help it move away from dependence on one product, and that no drug would account for more than 10% of the combined company’s revenue in 2012.
The company is also aiming to produce cost savings of around $4bn, which will be fully realised by the third year of operations. Savings are expected through cuts in sales, informational and administrative functions, as well as in R&D and manufacturing.
After Merck and Schering-Plough announced their tie-up in March, chief executives of other leading companies inevitably faced questions about plans for M&A.
Lilly’s chief executive John Lechleiter was perhaps the most vociferous in his rejection of the mega-merger approach. He told The Financial Times at the end of March: “I think we are seeing deals that are really driven more by weakness than what I would describe as strong strategic combinations … that will improve short-term problems but fail to answer the long-term question of research productivity.”
He concluded: “Most of what I have read about large mergers is that they are very disruptive to research and development.”
Leichleiter had chosen to take a slightly different path in October 2008 when Lilly bought biotech company ImClone for $6.5bn, reflecting an industry-wide trend for pharma to buy up mid-sized companies with a strong specialist focus.
Johnson & Johnson mid-range M&A deals
There was no shortage of acquisitions and deals in the $1-4 billion range, with Johnson & Johnson leading the charge and making no fewer than three major investments in the year.
Its first purchase came in May when it bought Los Angeles-based biotech firm Cougar Biotechnology for $970 million.
The acquisition brought with it promising pipeline treatment abiraterone acetate. The drug is currently in phase II trials for prostate cancer, and is one of several drugs in the company’s oncology-based pipeline. Cougar will be part of J&J’s Ortho Biotech oncology research & development unit, itself a division of Centocor Research & Development.
Then in July, the company struck a deal with Elan to purchase all of its pipeline drugs to treat Alzheimer’s in return for a $1 billion dollar investment and $500 million to be spent on developing leading compound bapineuzumab.
Administered intravenously once every three months, (bapineuzumab), is currently in phase III. A subcutaneous formulation, administered once a week, is currently in phase II. In addition, a vaccine for Alzheimer’s disease (ACC-001) is also under development.
Finally in September it acquired an 18% stake in vaccines firm Crucell, and the two companies will work together on developing monoclonal antibodies and vaccines for flu and other diseases.
J&J paid 302 million euros ($442 million) in equity and investment in the Netherlands-based firm in order to gain a foothold in the growing vaccines sector.
The partnership will focus on the development of a monoclonal antibody treatment for influenza -dubbed ‘flu-mAb’ – which would be the first of its kind.
Vaccines deals by Abbott, GlaxoSmithKline and Novartis
The Crucell deal was just one of many in the vaccine sector in 2009. Abbott’s $6.6 billion acquisition of Solvay in September was the biggest, and gives the US company access not only to Solvay’s vaccines business, but its presence in emerging markets as well.
The acquisition made sense for Abbott as it already holds the US marketing rights for Solvay’s fenofibrate franchise, its biggest selling products. This includes a ‘next generation’ fenofibrate TriLipix which the companies launched together in late 2008.
Solvay has significant presence and infrastructure in key high-growth emerging markets, including Eastern Europe and Asia, which represented about 20% of the company’s pharma sales in 2008.
In June, GSK spent $34 million for a 40% stake in a new joint venture with Shenzhen Neptunus to develop and manufacture flu vaccines for the burgeoning Chinese market, and was the first of three major deals with Asia-based firms.
Sanofi followed suit when it took a controlling stake in Indian vaccines business Shantha Biotechnics, Shantha’s pipeline includes a rotavirus vaccine, conjugated typhoid vaccine, and a HPV vaccine.
The company’s vaccines arm Sanofi Pasteur paid 550 million euros for Mérieux Alliance’s subsidiary ShanH, which owns a majority stake in Shantha Biotechnics.
Then in November Novartis purchased an 85% stake in Chinese vaccine producer Zhejiang Tianyuan for $125 million.
The Swiss company said the deal would help it expand its currently ‘limited presence’ in the $1 billion Chinese vaccines market, which is growing at a double-digit percentage rate.
Generics and specialists acquisitions in 2009
Expansion in the field of generics was another key target for several of the industry’s biggest companies. In March, Pfizer signed a new deal with Indian generics company Aurobindo, while in the same month Sanofi-Aventis completed its $2.6bn takeover of Zentiva. In May Sandoz, the generics arm of Novartis, announced its move for generic injectables business of Austrian company EBEWE Pharma.
The deal, which will cost Sandoz 925 million euros, is expected to go through this year and is attractive because of the access it provides to EBEWE’s oncology products.
The global oncology market is set to double to $60 billion in the next eight years, the company said.
Novartis chairman Daniel Vasella said: “The move fits our strategy and improves our ability to help cancer patients around the world by providing easier access to therapies.”
GSK has also been active in the field, and acquired a 19% stake in South African firm Aspen in December.
Then in April the company announced its acquisition of Stiefel, the world’s largest independent dermatology company, in a deal valued up to $3.6 billion.
GSK showed a desire to retain the independence and small-scale of Stiefel, by announcing that it would integrate its existing prescription dermatological products into Stiefel, rather than the other way round as one would traditionally expect. The new specialist global business will operate under the Stiefel identity within the GSK Group. Stiefel’s chief executive Charles Stiefel said: “The combination of Stiefel and GSK will create a leading company in global dermatology with a strong presence in the prescription, consumer and aesthetic skin health markets.”
Meanwhile, Roche developed further its own business model of combining therapeutics and diagnostics in one company by purchasing Innovatis.
The German company develops cell analysis technologies used by the biotech industry and Roche has been one of its key clients for years.
Roche will pay 15 million euros to acquire the company which Dr Jürgen Schwiezer, chief executive of Roche Diagnostics, said was a further step in its strategy to be a complete solution provider in the cell analysis research market.
Finally, while many pharma companies were diversifying, one company with a heritage in prescription medicines was bowing out of the sector altogether.
Procter & Gamble is a giant conglomerate, with annual sales of $83.5 billion and a brand portfolio ranging from food products to toiletries, beauty care and healthcare. Best known in the pharma sector for its blockbuster osteoporosis drug Actonel, the company was set to lose US patent protection for the drug in 2013, and was unwilling to invest to maintain its presence in the R&D-intensive field.
Specialist pharma company Warner Chilcott stepped in to buy its pharmaceutical division for $3.1 billion, instantly creating a new mid-size player within the sector. The company will take on including P&G’s full R&D capacity and most of its 2,300 employees will be retained.
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