Mergers & acquisitions pharma industry


Published on

Published in: Business, News & Politics
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Mergers & acquisitions pharma industry

  1. 1. Mergers & AcquisitionsPharma Industry19-06-2013 1M&A in the Pharma Industry_ Group7
  2. 2. 19-06-2013 2M&A in the Pharma Industry_ Group7Problems faced by the Indian Pharmaceutical Companies :-•Rising power costs, pricing curbs and other policy uncertainties.•Government wants to increase its ambit from 74 bulk drugs to over 640, thusreducing the revenue generating medicines.•Political stamp on the price, with United Progressive•Alliance(UPA) planning free medicines for the poor.•Fragmented and competitive market with difficulty ingaining market share.The Scenario:- High expectations by Indian promoters because of rising interest of MNC’s in localpharmaceutical companies. (Mylan bought Agila by paying eight times its last yearsrevenue)Foreign proposals to invest in Indian drug makers are stuck at the government becauseof the argument that MNC’s are buying local companies only to stifle competition.(100%FDI allowed). Guidelines being formed to enable the Competition Commission to take certain drugrelated decisions in case of the foreign investments in Indian pharmaceutical companies.In the past, acquisitions in the Indian pharmaceutical market were driven by differentreasons. E.g. In Ranbaxys case, the star attraction was the rights it had bagged fromUSFDA to launch the generic version of Lipitor, the worlds largest-selling medicine.
  3. 3. 3M&A in the Pharma Industry_ Group719-06-2013MULTINATIONAL PHARMA COMPANIES•To gain access to the pipeline of genericdrugs being developed by small and mid-sized Indian companies in order to leveragecost-effective R&D and low-costmanufacturing having similar value.•Patented foreign companies going offpatent in order to increase the number ofblockbuster drugs going off-patent & focuson generics adoption globally.•The manufacturing costis about 30% cheaper inIndia than in the US.•The cost of developing ageneric drug in India isabout half of that in theUS.INDIAN PHARMA COMPANIES•Indian Pharmaceutical Co’s lack marketingtheir setup in local geographies. Tie ups withMNC’s help Indian companies to developexpertise outside India.•The foreign companies help the Indiancompanies create a base for infrastructure asthey are already well established in theirrespective countries.•MNC’s help commercializing the products ofIndian companies through well establisheddistributors and retail chains.
  4. 4. 4M&A in the Pharma Industry_ Group719-06-2013Q1. Explain the trends of M&A activities in global pharmaceuticalindustry since last 3 years?Q2. Why do you think inorganic strategies are sometimesirreplaceable for industries like pharmaceutical?Q3. What is the M&A trend going forward in context with thepharmaceutical companies?Q4. What are the other popular inorganic growth strategies adoptedby pharmaceutical companies?
  5. 5. 5M&A in the Pharma Industry_ Group719-06-2013•The pharmaceutical sector is currently battling with declining pipelines, patentexpirations and a clampdown on healthcare spending. As their troubles grow, thesectors are being forced to increasingly engage in mergers and acquisitions (M&A)activity.•Three blockbuster deals happened in 2009. Pfizer acquired Wyeth for $68Bn, Merckacquired Schering-Plough for $41B, and Roche acquired Gen0entech for $46B.•In last 3 years, the pharmaceuticals and biotechnology sectors witnessed increasedM&A activity, including some big-ticket acquisitions of 72 deals worth $6bn. Thishas been possible largely because the sectors have the necessary internal resourcesand credit lines to finance such deals. Megamergers, which had been absent fromthe sectors since 2004, made a dramatic comeback in 2009.•The global pharmaceuticals and biotechnology sectors saw only a 1.7 percentincrease in the total number of deals. However, the total disclosed value of dealsincreased by a staggering 185 percent, to US$226.2 billion. Due to the threemegamergers, valued at US$155.9 billion, the average size of the deals increaseddrastically.
  6. 6. M&A in the Pharma Industry_ Group719-06-2013In the period from June 08 to May 09 the pharmaceuticals sector witnessedincreased M&A activity, including some big-ticket acquisitions, compared with theperiod from June 07 to May 08 . This has been possible largely because the sectorshave the necessary internal resources and credit lines to finance such deals
  7. 7. 19-06-2013 M&A in the Pharma Industry_ Group7 7•The total value of M&A deals targeting companies in Central Asia/Asia-Pacificdecreased by 43.8 percent to US$8.8 billion. This significant drop was due to decreasedactivity in Japan, where the value of acquisitions fell from US$7.7 billion to a mereUS$87.1 million.•However the global pharmaceuticals sector’s interest in China and India continued togrow. These countries accounted for 146 and 38 deals, respectively, out of the 305 dealswithin the region.•India emerged as the top target country in terms of deal value, as a result of the DaiichiSankyo’s US$4.6 billion acquisition of Indian generics firm Ranbaxy Laboratories.•With two large megamergers in the pharmaceuticals sector, pharmaceutical companiesaccounted for more than 91 percent of the total deal value in the current review period.•The deal value of acquisitions by pharmaceutical companies increased by 410.9 percent
  8. 8. 8M&A in the Pharma Industry_ Group719-06-2013•Opportunity for cost cutting earnings boost :–Drug companies “create value” by M&As and fire a lot of people. While some costsare unavoidable, others are duplicative. With the lower number of approvals,especially for large-market, general practitioner drugs, the large selling organizationshave capacity.•Developed market companies:-The developed market companies deployed M&A to bolster their product portfolioand expand their product offerings to customers in their existing markets of focus.For example, Shire Pharmaceuticals(Irelands) maintained their focus on the UnitedStates and Europe, respectively.•Focus on biologics:-Biotech drugs are not subject to the same risks of generic drugs as regular smallmolecule drugs, so their commercial life tends to be longer. Drug companies arelooking to monoclonal antibodies not just because of their advanced science, butbecause they can get paid for the innovation.
  9. 9. 9M&A in the Pharma Industry_ Group719-06-2013•Buying a sales force:-Companies try & partner away their drugs to different territories in order tocapture more of the value chain – or own more of the distribution. If a companyhas a hot new product soon to be approved in the US then an established salesforce helps the company to commercialize it’s product more easily due toenhanced marketing power•Economies of Scale :-Horizontal mergers between equals often do not result in efficiencies andsavings in the pharmaceutical sector. While activities such as commercializationand distribution are often scalable, R&D efficiency often suffers during ahorizontal merger of two large pharmaceutical companies. E.g. Pfizersacquisition of Warner Lambert and the Glaxo Wellcome and SmithKlineBeecham’s merger.•Emerging market companies:-Companies based in emerging markets see M&A as a way to gain access todeveloped markets, which offer stable operating environments, relatively higherprice points for drugs, and high growth rates in the specialty and genericssegments. Thus helping the companies to get a shift from a relatively small,highly fragmented domestic market to the developed one.
  10. 10. 10M&A in the Pharma Industry_ Group719-06-20131. Establishment of new strategic alliances and joint ventures:-R&D process for each drug take years and requires significant investments,and the outcome of these investments of time and financial resourcesremains unclear until the final approval of the drug. Hence pharmaceuticalcompanies are constantly looking for synergies that they can get fromcooperation with their competitors.2. Several global pharmaceutical MNCs have entered into licensingarrangements with Indian companies:-In order to be able to dip into a ready basket of generic products, these dealsare likely to accelerate the launch of products in various generic marketswhile offering the MNCs the advantage of cost effective manufacturing3. Most of the pharmaceutical MNCs have outsourced significant portion ofmanufacturing to verified third party vendors:-They act as marketing and sales organization resulting in less capitalintensive nature of operations. The outsourcing of manufacturing tomultiple third party vendors leads to better inventory management andconsequently lower working capital engagement.
  11. 11. M&A in the Pharma Industry_ Group719-06-20134. Bio-Pharma Convergence:-Biopharmaceuticals are projected as potential drugs curing many diseases. Manyresearches have proved that chemistry based medical innovations need to bereplaced by advances in biopharmaceutical research that will boost the growthof revenues and profits in the years to come.5. Contract ManufacturingNew start-up companies are increasingly getting international exposure throughthe contract manufacturing (of patented drugs, custom synthesis and scale-ups,specialized generics and old molecules) route. It is estimated that about 50% ofglobal bulk drugs / API manufacturing and around 15% of formulationsmanufacturing are outsourced to low cost destinations.6. Co-Marketing AlliancesAnother growth strategy adopted by Indian firms is entering into co-marketingalliances with foreign firms to market their products. Co-marketing alliances aretaking place not only between Indian and foreign producers, but also amongstIndian producers. Such alliances are proven to be beneficial to both the parties.
  12. 12. M&A in the Pharma Industry_ Group719-06-2013•The megamergers of 2009 have put pressure on other large pharmaceutical andbiotechnology companies. The likely candidates for the next wave ofconsolidation are Astra Zeneca, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnsonand Sanofi-Aventis.•However, executives of several companies have indicated they will not join themegamerger bandwagon, and will instead rely on their own research anddevelopment (R&D) or enter into smaller partnerships or M&A deals.•It is still not clear whether the sectors are heading towards more megamergersor whether they will move towards smaller strategic acquisitions. Deals in thebiotechnology sector could increase further as small and mid-size biotechnologycompanies become increasingly willing to enter into deals at value prices. Largepharmaceutical and biotechnology companies are scouting around for deals atmuch lower valuations, and the current trend of M&A in generics is one to watchfor in the future.
  13. 13. M&A in the Pharma Industry_ Group719-06-2013•Executives from the global pharmaceutical industry expect to seeincreased levels of consolidation, with 61% of respondentsanticipating either a significant increase or an increase in M&Aactivity in 2013.• The need for new product pipelines, new product acquisition,patent expiries, cost containment, and credit availability areidentified as the key drivers for increase in M&A activities in theglobal pharmaceutical industry.•Larger companies have cash piled in their accounts books, whiletheir product line is limited to few market leading products. Thesecompanies find it as an opportunity to acquire and leverage onpromising portfolios from smaller organizations.
  14. 14. 14M&A in the Pharma Industry_ Group719-06-2013
  15. 15. 19-06-2013 M&A in the Pharma Industry_ Group7 15MADE BY:1. Utkarsh Garg (121)2. Sangam Lalsivaraju (138)3. Sugandha Arora (140)4. Dhruv Mahajan (141)5. Nitish Dubey (177)