Mergers & Acquisitions in Pharmaceuticals

IVth Year B. Pharm + M.B.A (Pharma. Tech.) Trimester XII (Section A & B) Unit no. 10, Pharma Industry Trends April, 2012 Module 10 A

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 rather than remain separately owned and operated : a "merger of equals" The firms are often of about the same size Both companies' stocks are surrendered and new company stock is issued in its place

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable.

CIBA-Geigy

1996

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

2003 Novartis Generics group of businesses rebrands all global companies under one name, Sandoz. Geneva Pharmaceuticals begins its rebranding efforts, operating under the Sandoz name and creating a worldwide network of resources for generic pharmaceutical production and marketing. On December 1, Geneva officially became Sandoz. The company has more than 1,300 employees.

SmithKline Beckman
Both firms ceased to Merged exist when they merged

1989

acquired

1995

Merged

Both firms ceased to exist when they merged

2000

December, 2010, multinational FMCG giant Reckitt Benckiser acquired Paras Pharmaceuticals for Rs.3,260 crore. (US $ 724 mio.)

Improve valuation
The benefits of a greater focus to each of the businesses does get reflected in the 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 higher than the market capitalization of Sun Pharma since 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 include allopathic, oncology formulations and bulk drugs.
Demerger to create a global presence for Daburs pharmaceuticals business and provide focus to maximise penetration in global markets. For the FMCG business: Better and more efficient management of its resources and facilitate more accurate benchmarking with industry which lead to improvement in valuations for both businesses

It is an agreement in which 2 or more companies (JV Partners) contribute to the equity capital of a 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 the given 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 business 3. 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 predetermined ratio (rule out manipulation by either side)

To increase market share To gain control of a blockbuster drug existing or potential

To gain entry into a high growth therapeutic area

To enhance R&D productivity Access to new technology platform Management efficiency

Company

Target company

Year 1996 1999 2000 2000

Deal $ Billion 26 35 90 55 Lipitor

Novartis (Ciba Sandoz Geigy) Astra Pfizer GSK (Glaxo Wellcome) Pfizer Zeneca Werner Lambert Smith Kline French

Pharmacia

2003 2004

57 62

Celebrex

Sanofi Aventis Aventis (Sanofi)

Company Pfizer Merck Bayer Schering Plough Takeda Gilead Sankyo Abbott Nycomed UCB Abbott Abbott GSK Pfizer Shire Dainippon Sumitomo Lilly Dainippon Toyama GSK Solvay Teva Forest Shionogi J&J

Target company Wyeth Schering Plough Schering Organon Nycomed Pharmasset Daiichi Solvay Atlanta Schwartz Kos Piramal Steifel King New River Pharma Sepracor Icos Sumitomo Fujifilm, Taisho Reliant Pharma Fournier Taiyo Clinical Data Sciele Cougar

$ billion 68 41 19.7 14.5 13.6 11 7.7 7 6 5.8 3.7 3.7 3.6 3.6 2.6 2.6 2.3 2.1 1.4 1.65 1.4 1.2 1.2 1.1 1.0

Technology/product Prevnar, Enbrel Pharmaceuticals Pharmaceuticals Pharmaceuticals Pharmaceuticals Pentaprazole, Daxas/Daliresp Hepatitis C Pharmaceuticals Tricor, Trilipix, vaccines Protonix Pharmaceuticals Humira, Niaspan Generics Dermatology Analgesics Pharmaceuticals Lunesta, Xopenex Cialis Pharmaceuticals Pharmaceuticals Pharmaceuticals Pharmaceuticals Pharmaceuticals Pharmaceuticals Pharmaceuticals Cancer drugs

Company Novartis Boston Scientific

Target company Alcon Guidant

$ billion 39 in 2009 28 in 2010 27.5

Technology/product Eye care Medical Devices

Johnson & Johnson

Synthes

21.3

Orthopedic

GE Healthcare Life Sci Technol

Abbott diagnostic

Applied Biosyst

8.1 6.7

Diagnostic DNA sequencing

Merck KGA

Millipore

6.0

Equipment

Danaher
Fresenius Fresenius Roche Blackstone Endo Abbott

Beckman Coulter
Renal Care APP Pharm Ventana Cardinal health American Medical System Advanced Medical

5.9
4 3.7 3.4 3.3 2.9 2.8

devices, equipment
Dialysis Abraxane (Nanotech) Diagnosis Healthcare Urology. Pain Eye Care, Lasik

Kinetics Concepts Quagen Charles River

LifeCell Digene WuXi Pharma

1.7 1.6 1.6 Diagnostic Drug testing

Endo
J&J

Qualitytest
Mentor Vital Signs Whatman

1.2
1.03 0.86 0.71

GE Health

Company
J&J Teva

Target company
Pfizer OTC Barr-Pliva

$ billion
16.6 7.5

Technology/product
Consumer health Generics

Teva Novartis
Mylan Novartis Teva Daiichi Sankyo Teva Sanofi Aventis Barr Reckitt Benckiser

Ivax Eon
Merck KGA generic Hexal Ratiopharm Ranbaxy Sicor Zantiva Pliva Adams respiratory

7.4 6.8
6.7 5.3 5.0 4.0 3.4 2.6 2.5 2.3

Generics Generics
Generics Generics Generics Generics Biosimilars Generics Generics Generics

Sanofi Aventis
Watson Watson King Richter Gedeon Novartis

Chattem
Andrx Arrow Alpharma Polypharma Ebewe

1.9
1.9 1.75 1.6 1.3 1.3

Consumer health
Generics Generic Lipitor Generics Generics Generics

Company Roche

Target company Genentech

$ billion 47

Technology/product Rituxan, Avastin, Herceptin, MoAbs, Oncology Orphan biologics Cerezyme, Fabrazyme, Renagel, Synvisc Monoclonal Antibodies Biologics Velcade, Oncology Erbitux, Oncology Vaccines Nuvigil, Provigil, Treanda CNS, Oncology Oncology Tarceva, oncology Aloxi, Salagen, Hexalen, Oncology

Sanofi Aventis

Genzyme

20 15.6 13.5 8.8 6.0 5.8

AstraZeneca MedImmune Merck Takeda Lilly Novartis Teva Abraxis Astellas Eisai Serono Millennium ImClone Chiron Cephalon American BioScience OSI Pharma MGI Pharma

6.2

4.2 4.0 3.9

* India

2015.

will break into top 10 pharma markets in the world by

* Increasing spending on Healthcare will drive the MNCs to look

for Indian presence.

* Indian
* At

companies do not have the capital & expertise required for new drug development.
the same time form the point of view of MNCs, with the drying up of the R & D productivity in the US and the Developed markets and their search for other sources of innovation, acquisitions are a cost-effective way to bring in a portfolio of branded generics.

Change in the mindset of MNC as well as Indian Promoters

1) New Patent Regime 2) Challenges faced by generic cos. in regulated markets 3) Robust valuation offered by MNCs

Entered Pharma by acquiring Nicholas Laboratories in1988 for Rs. 20

* Revenues and profits due to the fall produced by Patent Cliff * 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 margin therapeutic categories like CVS, CNS, Oncology and anti diabetes. of infrastructure to cater to regulated markets. This will enable them to act as a manufacturing base to meet the demand for regulated markets. in niche segments like vaccines, biotech, nutraceuticals, OTC etc which has substantial growth potential both in India as well as Globally.

* Availability

* Presence

* Patent cliff: the total value of patents

expiring 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.

*
*Manufacturing prowess and cost competitiveness
of 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

*
*Cost efficiency : India rates higher than other countries
on cost efficiency
Percentage overall indexed manufacturing cost (USFDA approved plants) 150

cost

100
50 0 US EUROPE INDIA
Source : Taking wings, E&Y,2009

DATE MAY 2010

TARGET Piramal

ACQUIRER Abbott

DEAL VALUE ($MN) 3,720

JUNE 2008
MARCH 2009 DEC 2010

Ranbaxy
Matrix

Daiichi Sankyo
Mylan Reckitt Benckiser

4,538.5
738 720

JULY 2009
DEC 2009 APR 2008

Paras

Shantha
Orchid Dabur

Sanofi Aventis
Hospira Frenesius kabi

625.18
400.0 220.0

Source : Datamonitor

At $3.72bn (Rs 17,500 Crore), its the second largest pharma deal in India after the 19,780crore Daiichi-Ranbaxy deal in 2008

* What it means for Abbott ?

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

* Market share close to 7% * Strong presence in India (Growth rate 13-17%) * Complete product portfolio

The Piramal Group has agreed that for eight years after the deals closing, it will not enter the business of generics pharmaceuticals in India, or make or market them in emerging markets.

Abbott became market leader with the acquisition of Piramal with approx 7% market share

The Big Deal ABBOTT+PIRAMAL

ABBOTT LABORATORIES USA
USA

INDIA

PIRAMAL GROUP (PROMOTER GROUP) 52.10%

100% ABBOTT HEALTHCARE PVT LTD.

Cash USD 3.72bn

PIRAMAL HEALTHCARE LTD. BUSINESS TRANSFER

47.9%

PUBLIC SHARE HOLDER

FORMULATION BUSINESS

The Big Deal ABBOTT+PIRAMAL

Brief snapshot Acquirer Seller Asset acquired Abbott Healthcare private limited , India Piramal healthcare LTD India . Domestic formulation business including mass market, which manufactures, markets and sells branded pharmaceutical product in finished form. Business transfer of the formulation business into APHL as a going concern.

Mode of acquisition

Consideration

USD 3.72bn Upfront payment (USD 2.12 bn) Future payment :-USD 400 mn payable upon each of the subsequent four anniversaries of the closing commencing in 2011.
Cash on the balance sheet of AHPL.

Mode of funding

The Big Deal ABBOTT+PIRAMAL

Piramal overview
*A leader in the branded generics market .
*Strong brand equity & presence in the key areas :
Antibiotic, respiratory ,cardio vascular, pain and neurosciences.

*350 branded generics products. *Significant local foot print-largest sales force in
India .

*One of the largest formulation plants in India

* Piramal

markets the products in its Healthcare Solutions business in India only and does not market traditional generic products. * Today, branded generics account for 25 percent of the global pharmaceutical market, have the majority of market share in the largest emerging markets, and are expected to outpace growth of patented and generic products. * The Mumbai-based Piramal Healthcare Solutions business has a comprehensive portfolio of branded generics with annual sales expected to exceed $500 million next year in India, and market-leading brands in multiple therapeutic areas, including antibiotics, respiratory, cardiovascular, pain and neuroscience. * This business grew 23 percent in 2010 (fiscal year ended March 31, 2010), faster than the market in India.

Abbott will become no.1 in

India ~20% annual growth

over next several years.

Further diversified source of pharmaceutical growth.

Piramal to add >$500Mn in 2011sales in India. Total Abbott pharma sales expected to exceed $ 2.5 bn by 2020 in India .

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

* Piramal got very high valuation. * Abbott got quick market reach.
MARKETING SYNERGY:

* With Piramal, Abbott can leverage the combined sales force of

* Piramals extensive distribution network and field force was
undoubtedly one of the most priced asset for Abbott.

7,000 and gain access to tier-3 towns where it was not present.

Synergies
Revenue Generation

* Cost Reduction

* On a TV show, talking to Anil Singhvi and Menaka Doshi soon after

the 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.

*He bought 5.5% stake in Vodafone,India. *He diversified into Diagnostics business, with his OTC
business in place. save tax).

*He strengthened Lifesciences division(more of a tool to *He also catered into real estate business. *Yesterday he bought Buyers molecular imaging facility
to help NCE research

Establish a leading presence in branded generics

Piramal portfolio has 350 leading branded generics in multiple therapeutic areas. Solvay and Piramal give Abbott a critical mass and a comprehensive leading branded generics portfolio.

Deliver sustained doubledigit EPS growth

Abbott expected 20 % Piramal sales growth over the next 5 years. They expected transaction to be neutral to the EPS over the next several years, accretive thereafter.

Globally there is a new way of selling patented drugs, which we would not have been 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 the best interest of our shareholders -Ajay Piramal, Chairman, Piramal Group.