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Executive Summary
Pharmaceutical market growth rates have halved inside the past five years, and will remain modest into the next decade. At the same time, new drug approval rates have slowed. With costs continuing to rise, the industry’s margins are already being squeezed, but will come under growing pressure as payers adopt more stringent pharmaceutical cost-containment policies and as patents on a slew of blockbusting brands expire.
The world’s ten biggest pharmaceutical companies have committed almost $230bn to M&A deals since the beginning of 2007. The size of their assets and the cash-generating capabilities of their existing businesses have rendered them largely immune from the effects of the global economic downturn, during which big pharma M&A spending has actually accelerated. Key M&A announcements will continue to be made on a regular basis into 2010 and beyond.
Key findings of this report
• The pharmaceutical industry’s ten biggest players face the expiry of patents on brands that generate annual revenues of more than $130bn within the next five years. This ‘patent cliff’ is driving the acquisition of biotech assets designed to strengthen big pharma pipelines.
• Biotech/biopharma companies were the subject of nearly half the M&A transactions completed or announced by leading pharmaceutical companies between January 2007 and July 2009, and accounted for four of the ten biggest M&A deals witnessed in that period.
• The world’s ten biggest pharmaceutical companies generated prescription drug sales totaling $308bn in 2008. Their operations generated aggregate net cash of more than $106bn and pre-tax profits of $81bn. At the end of 2008 they were sitting on collective net assets worth $354bn.
• The ten leading companies have completed or reached definitive agreements on 64 M&A deals since January 2007. Together, they have committed almost $230bn to healthcare M&A transactions in the past two-and-a-half years.
• Biotech companies aside, consumer healthcare and generic businesses are among the most popular acquisition targets, reflecting a desire on the part of big pharma to reduce levels of exposure to conditions in the global market for prescription drugs.
• Two of the world’s five biggest generics businesses are active candidates for disposal. Sandoz and Teva aside, all of the world’s other leading generic companies are potential acquisition targets.
Use this report to
:
• Quantify individual pharmaceutical company exposure to major patent expiries in the next five years.
• Compare the strengths and weaknesses of big pharma pipelines and identify the gaps that biotech acquisitions will be used to plug.
• Track recent M&A activity by the world’s ten biggest pharmaceutical companies in terms of both deal values and strategic intent.
• Gain valuable insights into the strategic approaches to M&A activity being pursued by individual big pharma CEOs.
• Understand why most previous pharmaceutical mega-mergers failed to deliver long-term benefits, and how Pfizer and Merck hope to avoid repeating the industry’s past mistakes.
• Identify prime biotech/biopharma acquisition targets and the global, regional or national generic businesses most likely to attract acquisition bids.
Table of Contents
The Evolving Pharma M&A Landscape Executive Summary 12
Pharmaceutical industry pressure points 12
Can mega-mergers solve the industry's problems? 13
Big pharma M&A 13
Generic industry M&A 14
Biotech industry M&A 15
Chapter 1 Pharmaceutical industry pressure points 18
Summary 18
Introduction 19
Diminishing returns 20
Stock market reaction 22
Key factors behind the squeeze on big pharma 22
Patent expiries 23
Pharmaceutical cost-containment 25
Deteriorating R&D risk/return ratios 27
Adapting to the new market environment 30
Cost-cutting and efficiency increases 31
Enhancing pipelines 33
Corporate restructuring 34
Chapter 2 Can mega-mergers solve the industry's problems? 36
Summary 36
Introduction 37
The last wave of mega-mergers 38
Mega-merger legacies 38
Pfizer – transformed or transfixed? 40
The changing face of Pfizer 41
Measuring Pfizer's financial performance 42
Stock market judgments 43
Pfizer tries again 45
Transaction details 46
Impact of the Wyeth acquisition 46
Portfolio 46
Geographical presence 48
Pipeline 49
Exposure to patent expiries 50
Finances 50
Verdict on the Pfizer/Wyeth deal 51
Merck seeks M&A shelter 53
Transaction details 53
Impact of the Schering-Plough acquisition 55
Portfolio 55
Geographical presence 57
Pipeline 58
Exposure to patent expiries 59
Finances 60
Verdict on the Merck/Schering-Plough deal 61
Looking beyond the mega-merger 63
Chapter 3 Big Pharma M&A 66
Summary 66
Introduction 67
Big Pharma's financial muscle 68
Recent M&A activity 70
M&A targets 73
Future M&A trends 74
The shrinking pharmaceutical village 76
Pfizer 78
Company background 78
Portfolio and geographical reach 79
Pipeline status 81
Exposure to patent expiries 82
Strategic direction 84
Recent M&A activity 85
Bolstering the pipeline 85
Pfizer's latest mega-merger 87
Future M&A potential 88
Merck & Co 89
Company background 89
Portfolio and geographical reach 90
Pipeline status 92
Exposure to patent expiries 93
Strategic direction 94
Recent M&A activity 95
The move into biosimilars 96
A mega-merger designed to transform Merck's fortunes 97
Future M&A potential 97
Sanofi-Aventis 99
Company background 99
Portfolio and geographical reach 100
Pipeline status 102
Exposure to patent expiries 102
Strategic direction 103
Recent M&A activity 104
Bolstering the pipeline 105
Building a generics business 106
Investing in animal health 107
Future M&A potential 108
GlaxoSmithKline 111
Company background 111
Portfolio and geographical reach 112
Pipeline status 113
Exposure to patent expiries 114
Strategic direction 116
Recent M&A activity 116
Diversification 118
Supporting a push into emerging markets 118
Feeding the pipeline 119
Future M&A potential 120
Novartis 122
Company background 122
Portfolio and geographic reach 123
Pipeline status 125
Exposure to patent expiries 126
Strategic direction 127
Recent M&A activity 128
Focused diversification 128
Strengthening the pharma business 129
Future M&A potential 130
Roche 132
Company background 132
Portfolio and geographical reach 133
Pipeline status 136
Exposure to patent expiries 137
Strategic direction 138
Recent M&A activity 138
Gaining full control of Genentech 139
Accessing novel products and technologies 140
Strengthening the diagnostics business 142
Future M&A potential 143
AstraZeneca 144
Company background 144
Portfolio and geographical reach 145
Pipeline status 148
Exposure to patent expiries 149
Strategic direction 151
Recent M&A activity 151
The push into biologics 152
Future M&A potential 153
Johnson & Johnson 154
Company background 154
Portfolio and geographical reach 155
Pipeline status 157
Exposure to patent expiries 158
Strategic direction 159
Recent M&A activity 160
Targeting 'convergence' 161
Strengthening the pipeline 161
Future M&A potential 162
Eli Lilly 163
Company background 163
Portfolio and geographical reach 164
Pipeline status 165
Exposure to patent expiries 166
Strategic direction 167
Recent M&A activity 168
Strengthening the pipeline 168
Bringing alliances in-house 170
Future M&A potential 170
Bristol-Myers Squibb 171
Company background 171
Portfolio and geographical reach 172
Pipeline status 174
Exposure to patent expiries 174
Strategic direction 175
Recent M&A activity 176
Future M&A potential 178
Building a cash pile 178
Predator or prey? 179
Chapter 4 Generic industry M&A 182
Summary 182
Introduction 183
The generics market 183
Consolidation of the generics market 185
Big pharma involvement in generics 188
Generic M&A targets 190
Global targets 190
Teva 191
Mylan 192
Ratiopharm 193
Watson 195
Actavis 196
Stada 198
National/regional targets 199
CEE and Russia 199
India 202
Japan 205
Australia 207
Brazil 209
Mexico 211
Chapter 5 Biotech Industry M&A 214
Summary 214
Introduction 215
The biotech market 216
Leading biotech products 216
Leading biotech companies 218
Big pharma's recent biotech buying spree 220
Competition for biotech purchases 221
Biotech M&A targets 222
Leading revenue generators 224
Amgen 225
Gilead 226
UCB 227
Genzyme 228
Biogen Idec 229
CSL 230
Celgene 231
Other potential biotech acquisition candidates 233
Crucell (Netherlands) 234
Amylin Pharmaceuticals (US) 234
Vertex (US) 234
Regeneron Pharmaceuticals (US) 235
Human Genome Sciences (US) 235
Onyx Pharmaceuticals (US) 236
ThromboGenics (Belgium) 236
Spectrum Pharmaceuticals (US) 237
Proteolix (US) 237
Enzon (US) 237
Appendix 239
Primary research methodology 239
Index 240
List of Figures
Figure 1.1: Global pharmaceutical sales and growth rates, 2001-2008 20
Figure 1.2: US NME Approvals vs. R&D Spend, 1990 – 2008 29
Figure 2.3: Performance of Pfizer stock, 2003-2008 45
Figure 2.4: Structure of the expanded Merck & Co pharma portfolio 56
Figure 3.5: Cash generated and held by leading pharma companies, 2008 70
Figure 3.6: M&A spending and volume by company Jan 2007 – H109 72
Figure 3.7: Pfizer’s therapeutic focus, 2008 81
Figure 3.8: Merck & Co's blockbuster products, 2008 92
Figure 3.9: Sanofi-Aventis's leading products, 2008 100
Figure 3.10: Sanofi-Aventis pharmaceutical sales by region, 2008 101
Figure 3.11: Sanofi-Aventis pro-forma generic sales, 2008, US$m 106
Figure 3.12: Sanofi-Aventis net debt levels 109
Figure 3.13: GSK pharmaceutical sales by region 113
Figure 3.14: Novartis pharma sales by therapy area 123
Figure 3.15: Novartis pharmaceutical sales by region 124
Figure 3.16: Roche pharmaceutical sales by therapy area, 2008 134
Figure 3.17: Roche pharmaceutical sales by region, 2008 135
Figure 3.18: AstraZeneca pharmaceutical sales by therapy area, 2008 146
Figure 3.19: AstraZeneca sales by region, 2008 147
Figure 3.20: Insert figuretitlehere, with date where appropriate 165
Figure 3.21: BMS pharma sales by therapy area, 2008 173
Figure 4.22: Top 5 players in the 'core' generics market, 2008 186
Figure 5.23: Leading biopharmaceutical company product sales, 2008 219
Figure 5.24: Biotech and pharma industry stock performances 223
List of Tables
Table 1.1: Global pharmaceutical sales and growth rates, 2001-2008 20
Table 1.2: Leading brands facing patent expiry by 2014 24
Table 1.3: Big pharma exposure to patent expiries 25
Table 1.4: New drug approvals in the US, 1999-2008 29
Table 1.5: Costs as a percentage of big pharma revenues, 2004 and 2008 32
Table 2.6: Pfizer financials, 1997-99 and 2006-08 43
Table 2.7: Performance of Pfizer stock, 2003-2008 44
Table 2.8: Impact of the Wyeth acquisition on Pfizer's portfolio 48
Table 2.9: Anticipated change in Pfizer's US/international sales split 49
Table 2.10: Pfizer/Wyeth financial indicators 51
Table 2.11: Structure of the expanded Merck & Co pharma portfolio 55
Table 2.12: Merck & Co's expanded list of blockbuster products 57
Table 2.13: Change in the geography of the Merck & Co business 58
Table 2.14: New entities in SP's late-stage development pipeline 59
Table 2.15: Merck & Co/Schering-Plough financial indicators 61
Table 3.16: Pharmaceutical company sales rankings 68
Table 3.17: Cash generated and held by leading pharma companies, 2008 69
Table 3.18: Net assets of leading pharma companies at Dec 2008 70
Table 3.19: M&A spending by company since Jan 2007 71
Table 3.20: M&A deal volumes since Jan 2007 72
Table 3.21: Biggest M&A deals completed by the pharma top ten since January 2007 73
Table 3.22: Big Pharma M&A targets 77
Table 3.23: Pfizer company overview 78
Table 3.24: Pfizer pharmaceutical sales by therapy area 80
Table 3.25: Novel products in Pfizer's late-stage development pipeline 82
Table 3.26: Pfizer exposure to major patent expiries 83
Table 3.27: Pfizer acquisition activity 86
Table 3.28: Merck & Co company overview 89
Table 3.29: Merck & Co's blockbuster products 91
Table 3.30: Novel products in Merck & Co's late-stage pipeline 93
Table 3.31: Merck & Co's exposure to major patent expiries 94
Table 3.32: Merck & Co acquisition activity 96
Table 3.33: Sanofi-Aventis company overview 99
Table 3.34: Sanofi-Aventis's leading products 100
Table 3.35: Sanofi-Aventis pharmaceutical sales by region 101
Table 3.36: Novel products in Sanofi-Aventis's 102
Table 3.37: Sanofi-Aventis exposure to major patent expiries 103
Table 3.38: Sanofi-Aventis acquisition activity 105
Table 3.39: GlaxoSmithKline company overview 111
Table 3.40: GSK pharma sales by therapy area 112
Table 3.41: Novel products in GSK's late-stage development pipeline 114
Table 3.42: GSK's exposure to major patent expiries 115
Table 3.43: GSK acquisition activity 117
Table 3.44: Novartis company overview 122
Table 3.45: Novartis pharma sales by therapy area 124
Table 3.46: Novel products in Novartis's late-stage development pipeline 125
Table 3.47: Novartis's exposure to major patent expiries 127
Table 3.48: Novartis acquisition activity 129
Table 3.49: Roche company overview 132
Table 3.50: Roche pharmaceutical sales by therapy area 133
Table 3.51: Roche pharmaceutical sales by region, 2008 135
Table 3.52: Novel products in Roche's late-stage development pipeline 136
Table 3.53: Roche's exposure to major patent expiries 137
Table 3.54: Genentech's contribution to the Roche pipeline 139
Table 3.55: Roche acquisition activity 142
Table 3.56: AstraZeneca company overview 144
Table 3.57: AstraZeneca pharmaceutical sales by therapy area 146
Table 3.58: AstraZeneca sales by region 147
Table 3.59: Novel products in AstraZeneca's late-stage development pipeline 148
Table 3.60: AstraZeneca's exposure to major patent expiries 150
Table 3.61: AstraZeneca acquisition activity 152
Table 3.62: Johnson & Johnson company overview 154
Table 3.63: J&J's leading pharmaceutical products 156
Table 3.64: J&J's US/international sales split 156
Table 3.65: Novel products in J&J's late-stage development pipeline 157
Table 3.66: J&J's exposure to major patent expiries 159
Table 3.67: J&J merger and acquisition spending 160
Table 3.68: Lilly company overview 163
Table 3.69: Lilly pharma sales by therapy area 164
Table 3.70: Novel products in Lilly's late-stage development pipeline 165
Table 3.71: Lilly's exposure to major patent expiries 167
Table 3.72: Lilly acquisition activity 168
Table 3.73: ImClone's development pipeline 169
Table 3.74: BMS company overview 171
Table 3.75: BMS pharma sales by therapy area 172
Table 3.76: Novel products in BMS's late-stage development pipeline 174
Table 3.77: BMS exposure to major patent expiries 175
Table 3.78: BMS acquisition activity 177
Table 3.79: BMS proceeds from disposals 179
Table 4.80: Top 5 players in the 'core' generics market, 2008 186
Table 4.81: The ten biggest generic acquisitions completed since 2004 188
Table 4.82: Major CEE pharmaceutical acquisitions 200
Table 5.83: Development, commercialization and sales of leading biotech brands 217
Table 5.84: Leading biopharmaceutical company product sales and revenues 219
Table 5.85: Biotech M&A by top ten pharma majors, 2007 to date 220
Table 5.86: Biggest recent biotech M&A deals 222
Table 5.87: Biotech and pharma industry stock performances 224
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