So what have the been most noteworthy mergers and acquisitions (MA&) thus far in 2015? DCAT Value Chain Insights (VCI) examines the top announced and closed deals thus far and key trends in pharma M&A.
Teva's proposed acquisition of Mylan, and Mylan's proposed acquisition of Perrigo top the M&A activity thus far. But those deals, are not the only mega deals looming in the industry. The first half of 2015 saw the close of a major three-part deal with GlaxoSmithKline and Novartis, and the second half of this year is slated to see other key closings, such as Pfizer's $17 billion acquisition of Hospira and Merck KGaA's $17 billion acquisition of Sigma-Aldrich. A roundup of recent and announced pharma industry M&A.
The large deals thus far
Teva, Mylan, and Perrigo. Chief among the M&A activity thus far in 2015 is the still unresolved effort by Teva Pharmaceutical Industries to acquire Mylan N.V. for approximately $43 billion, a deal that Mylan has thus far rejected, and Mylan’s efforts to acquire Perrigo, a deal that Perrigo has thus rejected. In preparing for a possible legal battle, Teva recently purchased a 4.61% stake in Mylan N.V., which enables the company to begin legal proceedings in a Dutch court (Mylan is headquartered in the Netherlands) regarding its takeover proposal if necessary. It follows an announcement by Abbott Laboratories, Mylan's largest shareholder with a 14.5% share, that it intends to support Mylan's offer to acquire Perrigo and vote in favor of the acquisition at Mylan's upcoming shareholder meeting. The battle between Teva and Mylan comes at the same time as Mylan seeks to acquire Perrigo. Mylan issued a proposal to acquire Perrigo in April 2015 for $28.9 billion, and then later increased its offer in a proposed deal that Perrigo has thus far rejected.
So what would these possible combinations mean? A combined Teva and Mylan would create a leading specialty and generic drug company with combined pro forma 2014 revenues of approximately $30 billion. The companies' combined specialty pharmaceutical business would be approximately $10 billion with a therapeutic focus in multiple sclerosis, respiratory, pain, migraine, movement disorders, and allergy therapeutics. The deal, if completed, would come as Teva faces generic competition for its top-selling drug, Copaxone (glatiramer acetate), a drug to treat MS, which had 2014 revenues of $4.3 billion. The US Orange Book patents covering Copaxone (20 mg) expired in May 2014. To combat generic-drug incursion for Copaxone, Teva developed a new formulation, Copaxone 40 mg/mL, which is administered three times a week. The new formulation, which was approved by the US Food and Drug Administration (FDA) in January 2014, allows for a less frequent dosing regimen administered subcutaneously for patients with relapsing forms of MS. Earlier this year, Sandoz, the generics business of Novartis, became the first company to receive FDA approval for a generic glatiramer acetate in a 20-mg/1-mL daily injection.
On the generics side, a combined company Teva and Mylan would have a combined pipeline of more than 400 pending abbreviated new drug applications (ANDAs) and more than 80 first-to-files in the US, according to information from Teva. Teva noted that the acquisition of Mylan would provide Teva with capabilities and technologies to focus on more complex, hard-to-produce durable products. With the acquisition, Teva would also gain Mylan’s ophthalmic products, soft gel caps, topical and inhalant technologies, “Wave 2” biosimilars, injectables and alternative dosage forms, and antiretroviral products.
Mylan's proposed acquisition of Perrigo would enhance Mylan's position in specialty, generic, and over-the-counter (OTC) drugs. In 2014, Mylan posted revenues of $7.72 billion. Currently, Mylan markets a global portfolio of approximately 1,400 different products covering multiple therapeutic categories in a range of dosage forms and delivery systems, including oral solids, topicals, liquids and semi-solids, according to the company’s 2014 annual filing. The company typically focuses on those products that are difficult to formulate and manufacture and that have longer life cycles than traditional generic pharmaceuticals, including transdermal patches, high-potency formulations, injectables, controlled-release, and respiratory products. In addition, the company provides antiviral therapies. It also manufacturers active pharmaceutical ingredients (APIs) for its own products as well as provide third-party API manufacturing services. Mylan operates in two main segments, generics and specialty, with its revenues derived primarily from the sale of generic and branded generic pharmaceuticals, specialty pharmaceuticals, and APIs. In 2014, its generics business accounted for $6.46 billion and its specialty products for $1.19 billion in revenues.
Earlier this year, Mylan added to its specialty and generics portfolio with its acquisition of Abbott’s non-US developed markets specialty and branded generics businesses. With the Abbott acquisition, Mylan gained more than 100 specialty and branded generic pharmaceutical products in five major therapeutic areas, which included several patent protected, novel and/or hard-to-manufacture products, according to Mylan’s 2014 annual filing. Earlier this year, Mylan Inc. also agreed to acquire, through its Indian subsidiary Mylan Laboratories Limited, certain female health care businesses from Famy Care Limited, a specialty women's healthcare company with a focus in generic oral contraceptive products for $750 million in cash plus additional contingent payments of up to $50 million. Under the proposed transaction structure, Famy Care will spin off its female healthcare businesses under a court-approved scheme of demerger. Post demerger, Mylan will acquire the shares of the new resulting company. The deal is expected to close in the second half of 2015.
With regard to its interest in acquiring Perrigo, Mylan. first made a proposal to acquire Perrigo Company plc in a cash-and-stock transaction in a deal valued at approximately $28.9 billion in April 2015 and later upped its offer, which Perrigo has thus far rejected. As that deal waits on the table, Perrigo has also made some targeted acquisitions. Earlier this year, Perrigo agreed to acquire select OTC products from GlaxoSmithKline (GSK) and Novartis as part of those companies’ required regulatory approval for their three-part transaction under which GSK and Novartis combined their consumer healthcare businesses under a new joint venture. Perrigo's bid to acquire the OTC products has been unanimously approved by the boards of directors of Perrigo and GSK and is expected to close in the third quarter of 2015, pending approval by the European Commission, the Australian Competition and Consumer Commission, and Brazil's Council for Economic Defense, as well as the satisfaction of customary closing conditions. Also, earlier this year, Perrigo acquired the Mexican operations of Patheon for $34 million in cash to position the company in softgels.
Allergan and Actavis. The key deal thus far in 2015 in the specialty and generics market was the completion of Actavis’ $70.5 billion acquisition of the specialty pharmaceutical company, Allergan. In June 2015, Actavis announced that it would be using the Allergan name as its corporate name, keeping the Actavis name for its US and Canadian generics businesses. The move followed Actavis’ $28 billion acquisition of Forest Laboratories in 2014. The Allergan and Actavis combination created a top 10 or near top 10 pharmaceutical company by sales revenue, with combined annual pro forma revenues of more than $23 billion anticipated in 2015. The combined company has six blockbuster franchises with combined pro forma 2015 revenues of approximately $15 billion expected, including franchises with annual revenues in excess of $3 billion in eye care, neurosciences/central nervous system, and medical aesthetics/dermatology/plastic surgery. The combined company has an expanded commercial presence, which includes approximately 100 countries, with an enhanced presence across Canada, Europe, Southeast Asia, and Latin America and a strong footprint in China and India.The combined company has R&D funding of approximately $1.7 billion expected in 2015, focused within brands, generics, biologics and OTC portfolios. The combined entity has more than 20 innovative products in near- or mid-term development. The company's generics pipeline has approximately 230 ANDAs pending at the FDA, including approximately 70 first-to-file applications, as well as nearly 1,000 marketing authorization applications filed outside of the US. As a collateral deal, earlier this year, AstraZeneca agree to acquire the rights to Actavis’ branded respiratory business in the US and Canada for an initial consideration of $600 million on completion and low single-digit royalties above a certain revenue threshold.
Novartis and GSK. Among innovator companies, the key deal thus far in 2015 is the completion of a three-part transaction between Novartis and GSK under which Novartis acquired certain oncology products and pipeline compounds from GSK, created a consumer healthcare joint venture that combined the two companies' consumer healthcare divisions, and divested its non-influenza vaccines business to GSK.
Novartis acquired GSK's oncology products, including two pipeline candidates, for an aggregate cash consideration of $16 billion. Up to $1.5 billion of this amount is contingent on certain development milestones.With the closing of the deal, Novartis' oncology portfolio now includes 22 oncology and hematology medicines to treat more than 25 conditions. Some key products from GSK's acquisition include: Tafinlar, a BRAF inhibitor, and Mekinist, a MEK inhibitor, both approved for the treatment of metastatic melanoma; Votrient, a VEGFR inhibitor for treating renal cell carcinoma; Promacta for treating thrombocytopenia; Tykerb for treating HER2+ metastatic breast cancer; and Arzerra for treating chronic lymphocytic leukemia. Novartis also has opt-in rights for GSK's current and future oncology R&D pipeline (excluding oncology vaccines), which could be a source of new compounds and new targets. Sales of the acquired GSK oncology products in 2014 were approximately $2.0 billion.
In their new consumer healthcare joint venture, GSK Consumer Healthcare, Novartis holds a 36.5% share and GSK the balance. The new joint venture has leading positions in four key over-the-counter categories: wellness, oral health, nutrition, and skin health. The joint venture has scale and commercial presence in the developed world as well as in key emerging markets. Novartis also has four of eleven seats on the joint venture's board. Furthermore, Novartis has certain minority rights and exit rights, the latter of which would be executed using a pre-defined, market-based pricing mechanism.
As part of the three-part deal, Novartis divested its vaccines business (excluding its vaccines influenza business) to GSK for up to $7.1 billion plus royalties. The $7.1 billion consists of $5.25 billion paid upon completion and up to $1.8 billion in future milestone payments. Since 2013, Novartis has executed other strategic transactions to transform the company's portfolio. In January 2015, Novartis completed the sale of its animal health business to Eli Lilly and Company for approximately $5.4 billion. In October 2014, Novartis agreed to divest its influenza vaccines business to CSL Limited for $275 million, a transaction that is expected to close at the end of 2015. In January 2014, Novartis completed the sale of its blood transfusion diagnostics unit to Grifols S.A. for $1.7 billion.
AbbVie and Pharmacylics. Earlier this year, AbbVie acquired Pharmacyclics, a pharmaceutical company developing and commercializing small-molecule drugs for treating cancer and immune-mediated diseases, for $21 billion. The deal followed AbbVie's efforts last year to acquire the specialty pharmaceutical company, Shire, for nearly $55 billion, a deal in which AbbVie eventually decided not to pursue. Pharmacyclics' key product is Imbruvica (ibrutinib) for treating hematologic malignancies. Imbruvica is a Bruton's tyrosine kinase (BTK) inhibitor approved for use in four indications to treat three different types of blood cancers, including chronic lymphocytic leukemia, mantle cell lymphoma, and Waldenstrom's macroglobulinemia. Imbruvica received initial FDA approval in 2013 and received three Breakthrough Therapy designations by the FDA for these indications. (Breakthrough Therapy designations are provided if preliminary clinical evidence indicates the drug may offer a substantial improvement over available therapies for patients with serious or life-threatening diseases). The drug is now is approved in more than 40 countries. Imbruvica works by blocking a specific protein, BTK, which transmits important signals that tell B cells to mature and produce antibodies and is needed by specific cancer cells to multiply and spread. Imbruvica targets and blocks BTK, thereby inhibiting cancer-cell survival and spread. In 2014, Pharmacyclics posted revenues of $730 million, compared to $260 million for 2013, primarily due to a $479-million increase in Imbruvica net product revenue in 2014, the first full year of the drug's product sales. In its 2014 earnings release, Pharmacyclics said it expects US net product revenue of Imbruvica to be approximately $1 billion.
AbbVie says that the acquisition of Pharmacyclics will strengthen its position in hematological oncology drugs, a market which AbbVie estimates at $24 billion on a global basis. In 2014, Pharmacyclics began 25 Imbruvica trials across a variety of hematologic histologies. AbbVie said it sees further opportunity to develop Imbruvica for additional indications, including solid tumors, as well for immunology-related uses. Pharmacyclics, also has three product candidates in clinical development and several preclinical molecules in lead optimization.
AbbVie's decision to acquire Pharmacyclics follows its decision in 2014 to terminate a proposed $54.7 billion bid to acquire Shire. AbbVie's proposed acquisition of Shire involved a tax inversion structure by which the New AbbVie was to become a holding company for the combined AbbVie and Shire and to be incorporated in Jersey, the UK, Shire's place of incorporation. Through its incorporation in the UK, the AbbVie board expected the transaction to reduce New AbbVie's effective tax rate to approximately 13% by 2016. A subsequent notice by the US Department of Treasury, however, which signaled a limiting of corporate tax inversions, cast uncertainty as to this practice, so AbbVie decided to terminate the proposed acquisition.
AbbVie's move to acquire Shire last year and its decision to acquire Pharmacyclics is based on a strategy to diversify its pipeline and commercial portfolio. The company's total revenues are heavily reliant on Humira (adalimumab), which accounted for sales of $12.5 billion, or 63%,of the company's 2014 sales of $19.960 billion. Humira is indicated for treating rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn’s disease, ulcerative colitis, and plaque psoriasis. A key issue for AbbVie in the near-term is the patent expiry for Humira. The United States composition of matter (i.e., the compound) patent covering adalimumab is expected to expire in December 2016, and the equivalent European Union (EU) patent is expected to expire in the majority of EU countries in April 2018.
Pfizer and Hospira. Another key deal that is expected to close in the second half of 2015, is Pfizer’s $17 billion acquisition of Hospira, a provider of sterile injectables and infusion technologies. Although not reaching the scale of Pfizer's pursuit of AstraZeneca in 2014, the deal provides a targeted vehicle for Pfizer to grow its global sterile injectables business, including generic sterile injectables, as well as further position in biosimilars. The boards of directors of both companies have unanimously approved the deal. The transaction is subject to customary closing conditions, including regulatory approvals in several jurisdictions and approval of Hospira's shareholders, and is expected to close in the second half of 2015.
The deal provides a growing revenue stream and a platform for growth for Pfizer’s Global Established Pharmaceutical (GEP) business by combining Hospira’s generic sterile injectables products, including acute care and oncology injectables, with a number of differentiated presentations, with Pfizer’s GEP’s branded sterile injectables, including anti-infectives, anti-inflammatories, and cytotoxics. The deal also further positions Pfizer in biosimilars. Hospira is a provider of generic sterile injectables with more than 200 products in different presentations (i.e., vials, prefilled syringes, bags, and lyophilized products). Pfizer’s sterile injectable business consists of 73 products, primarily gained from acquisitions, and focused on anesthetics, anti-infectives, and oncology. The acquisition of Hospira further complements Pfizer's 2014 acquisition of InnoPharma, a specialty pharmaceutical company based in Piscataway, New Jersey. Pfizer acquired InnoPharma for an upfront cash payment of $225 million with up to $135 million of contingent milestone payments. At the time of the announced acquisition in July 2014, InnoPharma’s portfolio included 10 generic products approved by the US Food and Drug Administration (FDA), a pipeline of 19 products filed with the FDA, and more than 30 injectable and ophthalmic products under development. InnoPharma is focused on developing novel formulations of existing drugs, including hard-to-make products, such as those that require complex manufacturing capabilities or delivery forms, such as pens and depot injectables.
In acquiring Hospira, Pfizer hopes to take advantage of strong growth prospects for generic sterile injectables, and when announcing the Hospira deal, the company offered market data to support that position. The global generic sterile injectables market is projected to grow from $37 billion in 2013 to $70 billion in 2020, representing a growth rate of 10% versus 6% projected growth for the combined branded and sterile injectables segments. Future market growth is anticipated to be largely driven by China with 13% growth, the US with 6% growth, and other emerging markets with 12% growth. Pfizer’s projections show that growth will be driven by both generic sterile injectables volume and emerging markets as well as differentiated presentations in hard-to-make products in developed markets. Of the approximate $38 billion for generic sterile injectables in 2013, the US accounted for $7 billion, the EU5 (France, Germany, Italy, Spain, and the United Kingdom) $6 billion, and the rest of the world (ROW) $25 billion. By 2020, these three segments in the projected $70-billion generic sterile injectables market are forecasted to be $51 billion for ROW, $10 billion for the US, and $9 billion for the EU5.
Sigma Aldrich and Merck KGaA. Among suppliers, Merck KGaA’s announced $17-billion acquisition of Sigma-Aldrich in September 2014 signaled the company’s strategic emphasis in life science products and services. Already positioned in that sector through EMD Millipore, the pending acquisition of Sigma-Aldrich would provide Merck KGaA with combined revenues of its life science products and service businesses of approximately $6.1 billion. Closing is expected in 2015, subject to regulatory approvals (US and European authorities have approved the deal; other clearance from other national jurisdictions are pending) and other customary closing conditions. The combined company will serve the life-science industry with more than 300,000 products, which includes a range of products across laboratory chemicals, biologics, and reagents. In pharma and biopharma production, Sigma-Aldrich will complement EMD Millipore’s existing products and capabilities with additions along the value chain of drug production and validation. Merck KGaA said it plans to maintain a significant presence in St. Louis, Missouri and in Billerica, Massachusetts following completion of the transaction, as well as in important EMD Millipore sites, such as Darmstadt, Germany and Molsheim, France.
More action in the specialty pharma market
Endo International and Par Pharmaceutical. Another important deal in 2015 is the proposed acquisition by the specialty company, Endo International of the specialty pharmaceutical company, Par Pharmaceutical Holdings, Inc., for $8.05 billion, including assumption of Par debt. The transaction has been unanimously approved by the boards of directors of Endo and Par and is supported by the management teams of both companies. The move, according to Endo, would create a specialty pharmaceutical company that would include a growing generics portfolio that Endo said would put it among the top five as measured by US sales. The transaction is expected to close in the second half of 2015 and is subject to regulatory approval in the US and certain other jurisdictions, as well as other customary closing conditions.
The move, according to Endo, would create a specialty pharmaceutical company that would include a growing generics portfolio that Endo said would put it among the top five as measured by US sales. The Par portfolio includes nearly 100 products in multiple dosage forms and delivery systems, including oral solids, oral suspensions, injectables, and high barrier-to-entry products. Par offers a pipeline consisting of more than 200 ANDAS, 115 of which were filed with the FDA as of December 31, 2014. Approximately 33% of the filed ANDAs are potential first-to-file or first-to-market opportunities, and 75% of the overall development portfolio consists of Paragraph IV and first-to-file programs. It is expected that the Par R&D pipeline could generate approximately 20 to 25 ANDA filings each year in 2015, 2016, and 2017, according to Endo. Endo reported 2014 revenues of $2.88 billion. Its US generics business is the company's largest segment, which posted revenues of $1.14 billion in 2014. US branded pharmaceuticals accounted for $969 million, devices ($497 million), and international sales ($270 million).
Valeant Pharmaceuticals and Salix Pharmaceuticals. Another deal in the specialty pharma market in 2015 was Valeant Pharmaceuticals International's nearly $16 billion acquisition of Salix Pharmaceuticals, a deal that closed earlier this year. The deal followed Valeant's unsuccessful efforts to acquire the specialty pharmaceutical company, Allergan, in 2014, which was later acquired by Actavis. In acquiring Salix, Valeant won over a bid by rival specialty pharmaceutical company, Endo Pharmaceuticals, to acquire Salix. The move also followed Salix’s decision in 2014 to terminate a merger agreement with Cosmo Pharmaceuticals S.p.A., a specialty pharmaceutical company based in Lainate, Italy.
Salix Pharmaceuticals, headquartered in Raleigh, North Carolina, develops and markets prescription pharmaceutical products and medical devices for the prevention and treatment of gastrointestinal diseases. Salix’s strategy is to in-license or acquire late-stage or marketed proprietary therapeutic products, complete any required development and regulatory submission of these products, and commercialize them through Salix’s specialty sales force. For the year ended December 31, 2014, Salix generated net product revenue of $1.133 billion. Salix’s chief product is Xifaxan (rifaximin) tablets, a gastrointestinal-specific oral antibiotic, which accounted for 36% of the company’s product sales in 2014, or $405.4 million. The next largest product area for Salix is diabetes, specifically for Glumetza/Cycloset, which accounted for 27% of its product sales in 2014, or $308 million. The next largest product area for Salix are drugs for treating IBS (Apriso/Uceris/Giazo/Colazal), which accounted for 20% of its 2014 sales, or $227 million. Zegerid, an immediate-release formulation of the proton pump inhibitor, omeprazole, accounted for 10% of Salix’s product sales in 2014, or $112.6 million.
The acquisition of Salix Pharmaceuticals by Valeant adds to Valeant’s specialty pharmaceutical portfolio. In 2014, the company reported revenues of was $8.3 billion, of which 75% were in developed markets and 25% in emerging markets. Its 2014 revenues were bolstered by Valeant’s $8.7-billion acquisition of Bausch + Lomb in 2013 as well as other smaller acquisitions in 2013: Obagi Medical Products, Inc. (a company specializing in topical aesthetic and therapeutic skin-health systems), Natur Produkt International (a specialty pharmaceutical company in Russia), and certain assets from Eisai Inc. (US rights for Targretin (bexarotene) capsules and Targretin(bexarotene) gel 1%, used to treat skin problems arising from cutaneous T-cell lymphoma). In addition, in January 2014, Valeant acquired Solta Medical Inc., a company that designs, develops, manufactures, and markets energy-based medical device systems for aesthetic applications and also agreed to acquire Precision Dermatology, a company specializing in dermatology and topical products. Earlier this year, Valeant acquired the worldwide rights to Dendreon's Provenge (sipuleucel-T) product and certain other assets of Dendreon for $400 million in cash for the assets, which realized combined revenues of approximately $300 million in 2014.
Other deals in 2015. In other deals thus far in 2015, Merck & Co. completed its $9.5 billion acquisition of Cubist Pharmaceuticals, a biopharmaceutical company focused on the discovery, development, and supply of antibiotics to treat serious and potentially life-threatening infections. The deal is intended to strengthen Merck's position in anti-infectives, specifically its hospital acute-care business in a variety of therapeutic areas, including Gram-positive and Gram-negative multidrug-resistant infections. Another bolt-on acquisition is Allergan’s (formerly named Actavis) pending $2.1 billion acquisition of Kythera Biopharmaceuticals, a deal which Allergan announced in June 2015. The deal is expected to close in the third quarter of 2015 and with the close of the deal, Allergan will gain Kythera’s recently approved new molecular entity (NME), Kybella (deoxycholic acid), which is used to treat moderate-to-severe fat below the chin or commonly known as double chin. Through its $5.2 billion acquisition of NPS earlier this year, Shire gained the FDA-approved NME, Natpara (parathyroid hormone), for controlling hypocalcemia (low blood calcium levels) in patients with hypoparathyroidism, a rare endocrine disorder characterized by insufficient levels of the parathyroid hormone.
In the generics market, another deal this year was the closing of Sun Pharmaceutical Industries’s acquisition of Ranbaxy Laboratories. In April 2014, Sun Pharma agreed to acquire Ranbaxy for $3.2 billion plus the assumption of $800 million in debt from Daiichi Sankyo, which held a controlling stake in Ranbaxy, which it acquired in 2008/2009. With the closing of the deal, Ranbaxy was merged with Sun Pharma by means of a share swap, resulting in Sun Pharma as the surviving company and Ranbaxy as the company absorbed, and Daiichi Sankyo becoming the second largest shareholder in Sun Pharma, a stake in which Daiichi Sanyko later sold. According to information from Sun Pharma, the merger positions Sun Pharma as the world’s fifth largest specialty generic pharmaceutical company and the top ranking Indian pharma company.