Is M&A The New R&D? October 2009 Next Generation Pharmaceuticals Summit Frost & Sullivan Healthcare and Life Sciences Nort...
Focus Points <ul><li>Current State of Biopharma </li></ul><ul><li>Restructuring </li></ul><ul><li>M&A Trends </li></ul><ul...
Current State of BioPharma <ul><li>The pharmaceutical and biotechnology industry is in a state of  transition.  </li></ul>...
<ul><li>Adjusted for large mega deals, M&A in the pharmaceutical & biotechnology industry set a new record in 2008. </li><...
Pharma-Biotech Industry:  Factors Driving Industry Changes (Global), 2008-2020 Year 2008 2009 2010 2011 2012 0 5 10 15 20 ...
Pharma- Biotech Industry:  Key Drivers for M&A Activity (Global), 2010-2016 1 Drivers for M&A in Pharma - Biotech Blockbus...
Solution Pathway: Merger & Acquisition Strategy <ul><li>Theoretical Benefits </li></ul><ul><li>Portfolio diversification –...
Trying to Avoid Stalled Growth Outside Management Control <ul><li>External Factors  = 13% (Regulatory Actions, Economic Do...
Most Active M&A Industries Source:  Burrill & Company  (Dealogic, Financial Times) Deals below $10bn Deals above $10bn Mos...
Top Pharma-Biotech M&A (Global), 2008-2009 2009  46,800 (remaining 44% shares) Genentech Roche 2009 41,000 Schering-Plough...
Significant Mergers & Acquisitions in 2009 Pfizer - Wyeth Value: $68 billion Key Reason:   Imminent loss of Pfizer’s reven...
M&A – Short or Long Term Fix? Restraints Lack of improvement in R&D productivity Cultural compatibility  issues Alliances ...
The Short-Term View <ul><li>Investor and Shareholder Value Focus </li></ul><ul><li>Corporate Realignment Focus </li></ul><...
Mid- to Long-Term View <ul><li>R&D Innovation </li></ul><ul><li>Organic Growth </li></ul><ul><li>Internal Forces and Envir...
Organic Growth Advantage Fortune Global 500 Companies assessment. Champions = at least 5% annual organic growth, Laggards ...
Is M&A the new R&D? <ul><li>In house R&D is a vital asset for industry leading companies.  </li></ul><ul><li>Research & De...
Discussion Points <ul><li>Economic Crisis: would Mega-deals have happened this year anyways? </li></ul><ul><li>Consequence...
Frost & Sullivan
Frost & Sullivan <ul><li>Frost & Sullivan, the Growth Partnership Company, supports clients in the development of innovati...
The Essence of Growth Partnership Services Growth Team Membership™ A career-focused offering that was developed to address...
Our Global Perspective Globalization is both a risk and an opportunity - our global coverage and perspective will help you...
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Is M&A The New R&D?

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A Frost & Sullivan presentation on biopharma delivered at the Next Generation Pharmaceuticals Summit in October 2009.

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  • Removed essentially in first sentence
  • An estimated drop of approximately $80 billion in sales over the next five years on blockbusters such as Pfizer&apos;s Lipitor, Wyeth&apos;s Effexor, Merck&apos;s Singulair and Eli Lilly&apos;s Zyprexa is a major driver for big pharma to consolidate. In addition, there is a renewed interest in biologics as the future source of blockbusters, thereby leading to a rise of biotech acquisitions. Big pharmaceutical companies are focusing on attractive therapeutics markets like cancer, diabetes, CNS, etc. Biotech companies with existing product portfolio or at phase III stage of clinical trial are considered attractive acquisition prospects for the big pharma. Apart from biotech companies, even large pharmaceutical companies with strong drug development pipeline and low exposure to patent expiries are attractive M&amp;A targets. For instance, Schering-Plough&apos;s pipeline consisting mainly of biologics, with about 18 drugs in Phase III and its relative low exposure to patent expiries are the key reasons for its acquisition by Merck &amp; Co.
  • For 87% of total reviewed companes with a stall in growth, only 46% were able to return to moderate/high growth within the same decade. For those still slow-negative after 10 years, only 7% were able to ever return to moderate/high growth with 67% of them acquired, bankrupt, or became privatized.
  • Mega mergers witnessed in early 2009 clearly emphasised the rapid consolidation of the pharmaceuticals industry
  • Culture : Generally, most large companies are focused on their top line &amp; bottom line growth rather than innovation.
  • Is M&A The New R&D?

    1. 1. Is M&A The New R&D? October 2009 Next Generation Pharmaceuticals Summit Frost & Sullivan Healthcare and Life Sciences North America
    2. 2. Focus Points <ul><li>Current State of Biopharma </li></ul><ul><li>Restructuring </li></ul><ul><li>M&A Trends </li></ul><ul><li>Short Term vs Mid-Long Term Views </li></ul><ul><li>Conclusion </li></ul>
    3. 3. Current State of BioPharma <ul><li>The pharmaceutical and biotechnology industry is in a state of transition. </li></ul><ul><li>Reorganization, M&A, consolidation, and portfolio changes are being evaluated in order to maintain growth centers in the face of a myriad of serious challenges. </li></ul><ul><li>Overall, companies are looking to align with areas of growth opportunity as well as new business strategy and product development paradigms. </li></ul>
    4. 4. <ul><li>Adjusted for large mega deals, M&A in the pharmaceutical & biotechnology industry set a new record in 2008. </li></ul><ul><li>Potential value of strategic alliances also set a new record (Source: E&Y Beyond Borders 2009) </li></ul><ul><li>Consolidation is expected to continue among smaller companies as they attempt to continue operations in a tight funding environment. </li></ul><ul><li>Deals expected to continue as Big Pharma seeks to provide itself with pipeline and R&D innovation. </li></ul><ul><li>The industry overall is increasingly seeking synergies to drive down overall costs of R&D activities which are continuing to increase. </li></ul>Economic Perspective: Restructuring the Industry
    5. 5. Pharma-Biotech Industry: Factors Driving Industry Changes (Global), 2008-2020 Year 2008 2009 2010 2011 2012 0 5 10 15 20 25 30 Revenue Loss ($ Billion) $7B $22B $25B $5B $19B Source: Frost & Sullivan 2000 2005 2010 2015 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2020 R&D Expenditure ($ Billion) Forecasts of R&D Expenditure for Launch of a New Molecular Entity (Global), 2000-2020 Estimated drop of approximately $80 billion in sales over the next five years Continued Increase in R&D expenditures for successful NME launch Revenue Loss due to Patent Expiry (Global), 2008-2012
    6. 6. Pharma- Biotech Industry: Key Drivers for M&A Activity (Global), 2010-2016 1 Drivers for M&A in Pharma - Biotech Blockbuster drugs have been major contributor to both top line and bottom-line growth of big pharma. With slowing of small molecule blockbuster model, Big pharma is looking for new revenue drivers from biologics and specialty drugs Big pharma has strong financial leverage to acquire cash starved small & medium biotech firms. Offers an exit for Venture Capitalists who initially fund the research based biotech firms. 2 3 4 Strong product pipeline of biotech companies in high growth therapeutics Ex: oncology, autoimmune, CNS. Gain from established manufacturing and commercialization structures. Biosimilars – development is challenging compared to small molecule generic drugs. Biotechnology companies offer novel technology platforms, infrastructure, scientific talent pool and R&D productivity potential. 5 Existing alliances with biotech companies eases acquisition hurdles due to cultural compatibility & knowledge of acquiring company Source: Frost & Sullivan
    7. 7. Solution Pathway: Merger & Acquisition Strategy <ul><li>Theoretical Benefits </li></ul><ul><li>Portfolio diversification – new therapeutic areas, technology </li></ul><ul><li>Pipeline </li></ul><ul><li>Transfer of technical knowledge </li></ul><ul><li>Reduced time to market </li></ul><ul><li>New assets, capabilities, infrastructures </li></ul>
    8. 8. Trying to Avoid Stalled Growth Outside Management Control <ul><li>External Factors = 13% (Regulatory Actions, Economic Downturn, Geopolitical Changes, National Labor market inflexibility) </li></ul>Within Management Control <ul><li>Strategic Factors = 70% (innovation management breakdown, premium position captivity, premature core abandonment, failed acquisition (7%), key customer dependency, strategic diffusion or conglomeration, adjaceny failures, voluntary growth slowdown </li></ul><ul><li>Organizational Factors = 17% (Talent bench shortfall, board inaction, organization design, incorrect performance metrics </li></ul>Root Causes of Revenue Stalls Source: Olson, van Bever, and Verry, Harvard Business Review, March 2008 50 representative Fortune/Global 100 companies with growth stalls – N= 500
    9. 9. Most Active M&A Industries Source: Burrill & Company (Dealogic, Financial Times) Deals below $10bn Deals above $10bn Most Active M&A Industries Last 12 Months* (thru May 2009) Finance Healthcare Utilities & Energy Telecom Real Estate Oil & Gas Technology Food & Beverages Mining Construction 0 100 200 300 400 500 600 700
    10. 10. Top Pharma-Biotech M&A (Global), 2008-2009 2009  46,800 (remaining 44% shares) Genentech Roche 2009 41,000 Schering-Plough Merck & Co. 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2009 2009 Year 68,000 Wyeth Pfizer 720 Sirtris GSK 880 Speedel Novartis 1,100 Sciele Shionogi 1,600 Alpharma King 1,700 Lifecell Kinetic Concepts 3,700 APP Pharmaceuticals Fresenius 4,100 Convatec Nordic Capital 4,600 Ranbaxy Daiichi-Sankyo 6,500 ImClone Eli Lilly 6,700   Invitrogen - Applied Biosystems Invitrogen + Applied Biosystems 8,800 Millennium Takeda 1,400 CV Therapeutics Gilead Sciences Value ($ Million) Target Acquirer Until March 2009 Source: Frost & Sullivan
    11. 11. Significant Mergers & Acquisitions in 2009 Pfizer - Wyeth Value: $68 billion Key Reason: Imminent loss of Pfizer’s revenues due to patent expiration of Lipitor ($13.4bn ) during 2010-2011 Wyeth’s current portfolio of marketed products and strong pipeline of biologics particularly in CNS. Merck & Co. - Schering Plough Value: $41 billion Key Reason: Schering-Plough pipeline consisting mainly of biologics, with about 18 drugs in Phase III. Schering-Plough offers geographical diversity with 70% of its revenue outside the United States. Roche - Genentech Value: $46.8 billion (44% of remaining shares) Key Reason: Roche, through acquiring the remaining 44% of shares gets complete control of Genentech, a leader in biotechnology with blockbusters such as Avastin and Rituxan. Source: Frost & Sullivan
    12. 12. M&A – Short or Long Term Fix? Restraints Lack of improvement in R&D productivity Cultural compatibility issues Alliances - Licensing Economic Crisis Previous M&A activities have not significantly mitigated the R&D innovation and productivity crisis. Alliances / Licensing deals is seen as less riskier option than outright acquisition, especially with early stage developers. Severely affected credit markets could make debt raising difficult. Conflict potential with Big-business culture of a large pharmaceutical company versus biotech entreprenurial culture. Source: Frost & Sullivan Pharma-Biotech Industry: Top Restraints for M&A Activity in Pharma-Biotech (World), 2010-2016
    13. 13. The Short-Term View <ul><li>Investor and Shareholder Value Focus </li></ul><ul><li>Corporate Realignment Focus </li></ul><ul><li>Cost savings </li></ul><ul><li>What will take us to the future? </li></ul>New Company
    14. 14. Mid- to Long-Term View <ul><li>R&D Innovation </li></ul><ul><li>Organic Growth </li></ul><ul><li>Internal Forces and Environment </li></ul><ul><li>Creativity </li></ul><ul><li>Successful incorporation and development of acquired assets </li></ul>What creates a sustainable company?
    15. 15. Organic Growth Advantage Fortune Global 500 Companies assessment. Champions = at least 5% annual organic growth, Laggards = less than 5% annual organic growth Source: von Krogh and Raisch; Harvard Business Review, October 2009 Companies with high organic sales growth rates tend to outperform those with lower rates.
    16. 16. Is M&A the new R&D? <ul><li>In house R&D is a vital asset for industry leading companies. </li></ul><ul><li>Research & Development is the core of scientific innovation </li></ul><ul><li>You cannot buy long term sustainability </li></ul><ul><li>M&A doesn’t replace value from organic growth and alliances </li></ul>
    17. 17. Discussion Points <ul><li>Economic Crisis: would Mega-deals have happened this year anyways? </li></ul><ul><li>Consequences on small-mid tier companies </li></ul><ul><li>Discovery process activities for increased productivity </li></ul><ul><li>Best Practices implementation? </li></ul><ul><li>Challenges in late stage clinical programs from M&A </li></ul>
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