Nycomed case study - Coller prize 2013 winner

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  • 1. PRIVATE EQUITY AND THE GLOBAL HEALTHCARE SECTOR: IMPACTS AND OPPORTUNITIES A tale of private equity in healthcare… Nick Ibery, Kunal Sinha, Rishabh Mehreia Professor Eli Talmor THE ANNUAL COLLER PRIZE IN PRIVATE EQUITY AWARDS EVENING AND PANEL DISCUSSION 29 OCTOBER 2013
  • 2. The diverse healthcare industry Pharmaceuticals /Biotechnology Medical device Manufacturers/Suppliers Biotechnology R&D Medical device manufacturers Drug Suppliers Consumer medical products (e.g. testing supplies, monitors, first aid) Drug Manufacturers Medical device suppliers Healthcare Providers/Payors Services Hospitals/health systems Healthcare IT (hardware & software) Long-term care facilities Hospital/practice management Physician groups Managed care Data analysis Outpatient surgery centers Electronic medical records (EMRs) Ancillary providers (e.g. clinical laboratory, radiology, pharmacy) Telemedicine Practice services (e.g. services of physicians / mid-level practitioners) 2
  • 3. Positives of investments in healthcare due to non-cyclical nature of health-care spending From niches within a very diverse sector Value Adding due to predictable spending on and consumption of services and products High Growth Recession Proof Macro Market Favorable Demographics High Margin Positives Stable Cash Flow Highly Fragmented Platform for Buy & Build creates opportunities to generate returns through efficiency Industry through well managed and well operated companies in a fragmented sector Source: “Is Your Healthcare Company a Fit for Private Equity?”, by Richard Jackim, Midcap Advisors – Blog entry 3 ageing population, western lifestyles
  • 4. Risks of investments in pharmaceuticals long history of M&A and strategic buyers beating financial ones significant repercussions for post-launch issues Post-launch Long Product Cycle Power of Strategic Buyers PostLaunch Liability Risk significant reporting and disclosure requirements once products are in the market ~10 years for drug discovery, development, and commercialization Regulatory Hurdles Possible Risks PostLaunch Regulatory Burden 4 many filing and approval stages with very low success rates Pre-launch No Cash Flow preLaunch need to wait until commercialization (10 years)
  • 5. Drug development process – the view from Pharma companies Source: “Drug Discovery and Development”, by the Pharmaceutical Research and Manufacturers of America published in 2007 5
  • 6. Nordic Capital Background  Founded in 1989 by Robert Andreen and Morgan Olsson in 1989  Raised first fund in 1990  By now (2013), Nordic Capital a leading PE firm in the world  Committed regional focus through a strong physical presence – Offices and portfolio primarily across the Nordic and German speaking regions – deep roots within the Nordic region Office Locations as of 2012 Portfolio Company Locations as of 2012 United States Jersey Switzerland 6
  • 7. Nycomed Pharma before Takeda acquisition in 2010  Leading European and Emerging Markets co.  Prescription (87%) & OTC products (13%)  Present in more than 70 countries  €2.8bn revenue & €765mm EBITDA  Approx. 11,800 employees worldwide  Blockbuster products: – Pantoprazole: 2006 sales of $2.6bn – Daxas: newly launched but most effective product for the $10-20bn COPD market Note: Takeda did not acquire Nycomed’s US Dermatology Unit (Fougera) – the above figures exclude this entity 7
  • 8. 3 distinct phases of transformation for Nycomed Nycomed expands aggressively into EMs Nycomed acquires Altana Nordic Capital exits ex-US Sale to Takeda Expansion to a pan-EU co. An Emerging Markets co. • Global operations • Substantial synergies (~EUR 300 mn) • R&D pipeline • Emerging markets focus • Leverage key products • Daxas – approval and partnering with Forest (US) and Merck (EU) Nordic Capital acquires Nycomed A pan-nordic specialty pharma co. • €9.6bn trade sale • Largest in Europe and 3rd largest in the world • Joint company jumps to # 12 in the world by revenue • Excludes Fougera Sale of Fougera to Sandoz • Pharma focus; sold off non-pharma activities • Focus on In-licensing for product sourcing • Streamlined operations 1999 2000 2001 Nordic Capital 2002 2003 2004 US exit • $1.5bn trade sale • Closing H2 2012 2005 2006 DLJ et. al. 2007 2008 2009 2010 Nordic Capital 8 2011 2012
  • 9. 1999-2002 1st deal: Nordic Capital acquires Nycomed Pharma  Nycomed’s profile: – Strong market position in Norway and Denmark – Well diversified product portfolio – Orphan company being divested by parent (Nycomed Amersham) – Auction to strategic investors already failed  Nordic Capital’s post-investment goals for Nycomed: Targets during holding period Transaction details – May 1999 Reduce operational costs EV $548mm Divest non-core businesses Nordic Capital stake 69% Nycomed Amersham stake 29% Management stake 2% Drive revenue and EBITDA growth Nodic Capital Funds III, IV Replace management Planned Exit IPO, Trade Sale Re-position as a pan-Nordic co. by acquiring companies in-licensing products Note: In September 2001, Nordic Capital purchased Nycomed Amersham’s 29% ownership interest using fund IV 9
  • 10. 1st deal exit to Credit Suisse, Blackstone et. al. Transaction details – May 1999 EV €1,114mm Sales multiple 2.1x EBITDA multiple 8.9x EBITA multiple 11.5x Buyer Credit Suisse, Blackstone et. al. Exit Secondary sale Return for Fund III 6.3x / ~65% IRR Return for Fund IV 1.9x / ~70% IRR 10
  • 11. 2005-2012 2nd Deal: Nordic Capital reacquires Nycomed Pharma  Strong belief in management team’s ability to execute a well-defined growth strategy Investment Thesis:  Strengthen product portfolio by in-licensing/acquiring late-stage products with clinical proof of concept (CPoC): – Enter rapidly growing therapeutic segments – Strengthen current offerings  Become the “Preferred partner” in Europe of research based companies  Scale down internal and early-stage projects  Increasing operational, cost and capital efficiencies 11
  • 12. 2011 Takeda-Nycomed Deal Rationale  Geographic Synergies: Complementary geographical businesses / ease of integration: Source: Takeda Investor Presentation from May 2011 12
  • 13. 2011 Takeda-Nycomed Deal Rationale  Transaction transforms Takeda’s commercial infrastructure – Deepens presence in Europe – Establishes Takeda in high growth Emerging Markets Europe Emerging Markets Source: Takeda Investor Presentation from May 2011 13
  • 14. Nordic Capital: Value creation  Structural transformation  Operational improvement  Buy-and-build  Growth in emerging market  Strategic repositioning  Growth acceleration 14
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  • 16. Thank you! Open floor Q&A session
  • 17. Turning a disaster into an opportunity ... and a big success • Coinciding with Nycomed’s acquisition • Russian business sizeable – but unprofitable • Nordic Capital negotiates significant discount for taking on the risk • Many Western MNCs which had entered Russia recently, exit the market (e.g. Merck) The Russian ruble crisis hits in August 1998 Nycomed Russia CEO spots an opportunity • Initial plans from Nordic Capital call for closing down Russia • CEO of Russian business makes a case for turning around in 6 months – gets board approval and backing • New plans call for leveraging presence in the region since Soviet era, strong brand recognition, and strong relationships with customers and suppliers • Receivables are recovered with minimal writeoffs • Co. is restructured (~50% layoffs) • Exiting MNCs lower competitiveness in the Russian market • Some (e.g. Merck) out-license all their products to Nycomed to sell in the region Russia drives growth and provides the appetite for Ems The Russian business grew from $11mm in 1999 to more than $600mm in 2011 17
  • 18. Dec 2006 Altana acquisition numbers Transaction details – Dec 2006 EV of Altana €4,215mm EV/EBITDA 6.3x EV/EBITA 7.4x Wt. EV/EBITDA 7.6x Wt. EV/EBITA 10.3x New Nordic Capital Equity €350mm New Debt for the group €5,000mm New Debt/EBITDA 4.9x 2006E pro forma EBITDA Note: In connection with closing Blackstone and other Credit Suisse co-investors sold their remaining ownership in Nycomed to Nordic Capital and other investors 18
  • 19. Dec 2006 Altana acquisition – a big bet or a calculated risk? Benefits Risks Favorable Cash Flow profile Pantoprazole LoE Cost saving through synergy and restructuring Target 3x size of acquirer Strategic geographic fit Sun/Teva Launch “at-risk” Few bidders Significant leverage to support the deal 19
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