M&A trends in Pharma

M&As have been the preferred growth strategy by a majority of Pharma companies. Although mega-mergers certainly create economies of scale and boost pipelines, the long-term effects may not be as favorable as desired. Current trends show the mega-mergers of the past are now a long gone strategy, as now companies are seeking to buy smaller companies for a smaller fee.

Report Highlights
Monoclonal antibodies have been a driving force of M&A activity within the biotech sector. Monoclonal antibodies make biotechs a very alluring target as they are predicted to have strong growth, and are not subject to generic erosion in the immediate future. Such is their pulling power that they have commanded high deal values and premiums.

The only country which has seen an increase in M&A activity is Japan. Aided by the weak dollar, Japanese firms are keen to enter the lucrative US market. In just over six months there have been four major buy-outs by Japanese companies.

Due to fierce competition and saturation in the US, coupled with a strengthening Indian market, India's generics companies have become more acquirers than targets, either buying directly in the US or indirectly by acquiring a less costly European firm.
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CHAPTER 1 EXECUTIVE SUMMARY 4
Scope of the report 4
Key findings 4
Key definitions 7
Methodology 7
CHAPTER 2 INTRODUCTION TO M&AS IN PHARMA 13
An end to the era of the mega-mergers? 14
An end to the era of the mega-mergers? 14
AstraZeneca - from mid-cap to a leading pharma company 14
Setbacks in the R&D pipeline drive an acquisition spree 16
Pfizer: bigger is not necessarily better 17
What happened to Pfizer after the mergers? 19
GlaxoSmithKline (GSK): R&D restructuring post-merger 21
GlaxoSmithKline restructured its R&D in an effort to drive productivity 23
New trends: the post-mega merger era 24
Drivers and resistors of M&As 26
Drivers of M&A in Pharma 26
The number of new drugs entering clinical trials has been declining 26
Looming patent expiration dates and growing generic competition erode market share 28
Increasing breadth and depth of a product portfolio 29
The potential for cost savings acts as a stimulant for a large proportion of M&As 30
Sharing risk to dilute pressures 30
Geographical expansion and joining competencies to increase market share 31
Resistors of M&A in Pharma 32
Problems with integration can result in divorce 32
High demand results in rising bids 33
CHAPTER 3 OVERVIEW OF M&A ACTIVITY IN THE PAST TWO AND A HALF YEARS 34
Trends in deal values 35
Deals under $1 billion are the most common 37
Higher premiums observed for early-stage companies 38
Alliances are on the rise as these offer a more cautious approach 39
M&As of the future: less risk through milestone payments 40
IPO valuations remain a challenge: as available capital shrinks more M&A activity is predicted 40
Big Pharma's giants remain the most acquisitive companies 41
Top Big Pharma companies opting for M&A 42
Pfizer 43
Roche 44
GlaxoSmithKline (GSK) 44
Johnson & Johnson 46
AstraZeneca 47
Bayer AG 48
Merck & Co. 48
Novartis 49
Eli Lilly 50
Roche's long history of M&As 51
Genentech 53
Chugai 55
Small pharma is the industry most involved in M&A 55
Consumer care was the main target for companies looking to diversify 56
CHAPTER 4 BIOTECHS ARE POPULAR ACQUISITION TARGETS IN A QUEST TO ENTER THE BIOLOGICS ARENA 58
Overview of the biotech industry 59
M&As within European biotechs 61
Monoclonal antibodies are driving M&As in the biotech sector 62
Five blockbuster monoclonal antibodies will continue to dominate this sector 68
Monoclonal antibodies are proving to be a goldmine due to their incredible commercial potential 69
AstraZeneca acquires CAT to enter the biologics market 69
AstraZeneca acquires MedImmune to further enhance its monoclonal antibody and vaccine portfolio 71
The outlook for AstraZeneca after the biotech acquisition frenzy 73
GlaxoSmithKline steps up with biotech pioneer Domantis 75
Merck KGaA enters the biotech sector for the first time through the acquisition of Serono 77
CHAPTER 5 ONCOLOGY-FOCUSED COMPANIES ARE PRIME ACQUISITION TARGETS 79
Companies are attracted to the most profitable markets 80
Oncology sparks a wave of interest across all sectors 85
The ones to watch in oncology 86
Infectious diseases and oncology were the primary therapy area for the biotech acquisitions 88
Celgene and Pharmion: portfolio synergy to become a leader in a niche market 89
UCB strengthens its CNS portfolio through the purchase of Schwarz Pharma 90
CHAPTER 6 THE RISE OF ACQUISITION ACTIVITY BY JAPANESE PHARMA COMPANIES 91
US companies are the main foreign target for Japanese acquirers 92
Overview of the Japanese pharmaceutical market 95
Takeda buys Millennium Pharma to expand in the US 97
Eisai buys Morphotek and MGI Pharma to boost its maturing drug portfolio 99
Mitsubishi Pharma and Tanabe Seiyaku join forces 101
Will Japan Pharma become more interesting acquisition targets as the push for innovation continues? 104
The rise of specialty pharma in Japan: license in drugs or sell domestic drugs abroad? 104
CHAPTER 7 GENERIC FIRMS KEEP TO THEIR OWN 106
Overview of the generics market 107
US generic companies are expanding abroad 110
The generics sector is highly developed in India 110
Indian generics companies have been acquisition targets... 112
...but now more Indian generics are acquiring companies outside India 114
Ranbaxy's M&A strategy reflects the anticipated growth in the immature markets 115
Generics companies are looking to expand in Central and Eastern Europe 116
Mylan expands globally with the purchase of Merck's generic division 118
CHAPTER 8 TECHNOLOGY TARGETS ARE EXPECTED TO SHIFT TOWARDS RNAI AND WOUND CARE 119
Genomics companies are the main acquisition targets within the technology sector 120
M&As for RNAi are expected to rise 122
More companies are realizing the commercial potential of RNAi-based therapeutics 123
Tekmira and Protiva: two niche technology firms join forces 124
Merck & Co. buys Sirna Therapeutics 125
Wound care 126
CHAPTER 9 BIBLIOGRAPHY 128
Publications and online articles 128
Datamonitor resources 133
Glossary of Terms 135
Appendix 137
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Table 1: Acquirer and target company classification 8
Table 2: Top 20 M&As by deal value, 2006-mid 2008 35
Table 3: Who is buying who: M&As according to industry type, 2006- mid-2008 56
Table 4: Examples of M&A deals where the acquirer has targeted monoclonal antibodies 64
Table 5: Examples of M&A deals where the acquirer has targeted vaccines 64
Table 6: US generic companies are looking abroad due to saturation and intense competition in their domestic market 110
Table 7: Indian generics have been targeted by different companies 112
Table 8: Generic companies in India have become more involved in M&As 114
Table 9: M&A deals targeting genomics, 2006-mid-2008 121
Table 10: Classification of Big Pharma, mid pharma and biotech companies 137
Figure 1: Mega-mergers may provide just short-term solutions and hinder innovation 14
Figure 2: Astra's and Zeneca's main products in 1999 complemented each other's pipeline 15
Figure 3: Mutual benefits of the Pfizer/Warner Lambert acquisition 18
Figure 4: Pfizer's post-M&A growth was short-lived 20
Figure 5: Issues that led GlaxoSmithKline to restructure its R&D model 23
Figure 6: The drivers for M&A target the current problems for Big Pharma 26
Figure 7: NME and BLA approvals are decreasing, 1990-2007 27
Figure 8: Forecast of lost sales due to patent expiry and main drugs going off-patent, 2007-11 29
Figure 9: Four by four matrix showing how M&As can allow a company to grow 32
Figure 10: Average deal value, 2006-mid-2008 36
Figure 11: Deal value between 2006 and mid-2008 is mostly under $1 billion 37
Figure 12: Trends show mergers are declining as acquisitions are increasing 39
Figure 13: Top pharma companies involved in M&A, 2006-mid-2008 41
Figure 14: Top Big Pharma companies involved in M&A, 2006-mid-2008 42
Figure 15: Summary figure showing Roche's M&A activity (2006-June 2008) and the benefits provided by each transaction 52
Figure 16: Targets of other types of companies, 2006-mid-2008 57
Figure 17: Needs and challenges that are driving pharma-biotech deals are complementary 59
Figure 18: Sales and marketing assistance is the main reason biotechs engage in M&As 60
Figure 19: Antibodies are the driving force behind M&As for Big Pharma and Biotech player 63
Figure 20: Commercial benefits and drawbacks of MAbs, vaccines and therapeutic proteins 67
Figure 21: AstraZeneca's inheritance from its acquisitions 72
Figure 22: AstraZeneca's acquisitions will have short-term financial benefits 74
Figure 23: Oncology, CNS and AIID are commercially the most attractive markets 81
Figure 24: Therapy area targets of M&As in the pharmaceutical industry, 2006-mid-2008 82
Figure 25: Big Pharma's and mid pharma's M&As targeted primarily cardiovascular-focused companies, 2006-mid-2008 83
Figure 26: Big Pharma's and mid pharma's M&As targeted primarily oncology companies if biotech are included in the analysis by therapy area, 2006-mid-2008 84
Figure 27: Small pharma's deals targeted oncology and CNS-focused companies, 2006-mid-2008 85
Figure 28: Biotech's main therapy area targets for M&A deals, 2006-mid-2008 88
Figure 29: Japan is the only acquiring country which has had an increase in the number of M&As for 2006-mid-2008 92
Figure 30: Hurdles in the Japanese market and financial benefits offered in the US are driving Japanese pharma to increase M&A activity 94
Figure 31: Chugai is set to grow the fastest until 2012, unlike Dainippon Sumitomo and Eisai which are likely to experience negative growth 96
Figure 32: Eisai has taken significant steps to boost its pipeline 101
Figure 33: The merging of Mitsubishi Pharma and Tanabe Seiyaku will boost their biologics presence 103
Figure 34: M&A trends for US/European generic firms, Indian generic firms, and trends that are in common for all 109
Figure 35: M&A deals targeting technology firms, Jan 2006 - June 2008 120
Figure 36: Complementary needs of Merck & Co. and Sirna result in good strategic fit 126
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