As we begin the final month of 2015, what have been the top stories of 2015 thus far? DCAT Value Chain Insights (VCI) takes a retrospective look.
The year 2015 will go down as the year of mergers and acquisitions or would-be mergers and acquisitions. The pending $160 billion deal combining Pfizer and Allergan tops the list as the mega deal of the year and in the history of the pharmaceutical industry. But there have been other noteworthy moves, including Teva's pending $40.5 billion acquisition of the generics business of Allergan, and Merck KGaA's $17 billion acquisition of Sigma Aldrich, to highlight a few. DCAT Value Chain Insights (VCI) charts the key events of 2015 impacting the pharmaceutical manufacturing value chain.
The top stories in 2015 thus far
1. The $160 billion merger of Pfizer and Allergan. Without question, the number one event in the pharmaceutical industry is the proposed $160 billion merger between Pfizer and Allergan, the largest deal in 2015 and in the history of the pharmaceutical industry. A combined company would place Pfizer in the number one ranking in the pharmaceutical industry and further strengthen the company’s innovative products. If the deal proceeds, Pfizer would make its corporate headquarters in Ireland, currently the global headquarters of Allergan, keeping New York as its operational headquarters, and giving Pfizer a preferred corporate tax position. Unlike its $119 proposal to acquire AstraZeneca in 2014, which was rebuffed by AstraZeneca and which Pfizer ultimately decided not to pursue, the proposed combination of Allergan and Pfizer is proceeding on friendly terms with the board of both companies approving the transaction. If the deal proceeds as planned, it will close in the second half of 2016.
2. The formation of the new Allergan. Actavis’ $70.5 billion acquisition of Allergan closed in March 2015, making it the most important closed acquisition thus far in 2015. The move followed Actavis’ $28 billion acquisition of Forest Laboratories in 2014. The Allergan and Actavis combination (Allergan became the corporate name of the combined company) 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. Just as quickly as Allergan rose in the pharmaceutical rankings, it made another large move, the proposed sale of its generics business to Teva Pharmaceutical Industries.
3. Teva’s $40.5 billion acquisition of Allergan Generics. Teva’s proposed $40.5 billion acquisition of the generics business of Allergan was another story topping the headlines in 2015. The deal, a friendly acquisition approved by the boards of both companies, is expected to close in the first quarter of 2016.In seeking to acquire Allergan Generics, Teva will strengthen its already strong generics portfolio. Allergan's generics pipeline has approximately 230 abbreviated new drug applications pending at the US Food and Drug Administration (FDA), including approximately 70 first-to-file applications, as well as nearly 1,000 marketing authorization applications filed outside of the US, according to company information.
4. The would-be mega deals of 2015. Perhaps as important as the large closed or announced mega deals of 2015 were those deals that did not come to fruition, most notably Teva’s proposed acquisition of Mylan, and Mylan’s proposed acquisition of Perrigo. Teva had sought to acquire Mylan for $43 billion, a deal that Mylan rejected and which Teva decided to drop after seeking to acquire the generics business of Allergan. Mylan, which was pursued by Teva, was also the suitor, in an unsuccessful $26 billion takeover bid of Perrigo. Mylan lost its seven-month effort to acquire Perrigo in November 2015 after failing to secure at least 50% of the shares in its tender offer for Perrigo.
5. Merck KGaA’s $17 billion acquisition of Sigma Aldrich. Among suppliers, Merck KGaA’s $17-billion acquisition of Sigma-Aldrich, which closed in November 2015, was largest deals among supplier and was the largest in the history of the company. With the acquisition, Merck KGaA will have around 50,000 employees in 67 countries, working at 72 manufacturing sites worldwide. Combined pro forma full-year life science sales amounted to EUR 4.6 billion ($4.9 billion) in 2014. As announced on publication of the results for the third quarter of 2015, the company expects sales to amount to between EUR 12.6 billion ($13.4 billion) and EUR 12.8 billion ($13.6 billion) in 2015. The deal was the largest piece of a transformation for Merck KGaA, which has made acquisitions and divestments totaling EUR 38 billion ($40.5 billion) in the past decade, turning the former pharma and chemicals company into a science and technology company with three businesses in healthcare, life science,and performance materials. With the acquisition of Sigma-Aldrich, Merck KGaA will be able to serve the life science industry with more than 300,000 products. To ensure a smooth integration, Merck KGaA has made significant progress on integration planning for the new business, which will be named “MilliporeSigma” in the US and Canada.
6. The asset swaps of GlaxoSmithKline (GSK) and Novartis. A key deal thus far in 2015 was 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.
7. 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 followed its decision in 2014 to terminate a proposed $54.7 billion bid to acquire Shire. AbbVie's proposed acquisition of Shire involved a corporate 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.
8. Pfizer and Hospira. Although now dwarfed by its proposed $160 billion merger with Allergan, Pfizer also made the headlines in 2015 with its $17 billion acquisition of Hospira, a provider of sterile injectables, infusion technologies, and biosimilars. 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 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. At the time of the announced acquisition in July 2014, InnoPharma’s portfolio included 10 generic products approved by the 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.
9. Baxalta and Shire. In another deal, still on hold, is Shire’s proposed approximate $30 billion acquisition of Baxalta, the biopharmaceutical company spun off from Baxter earlier this year. A little more than a month after Baxalta was formed as an independent company in July following its separation from Baxter, Shire made an approximate $30 billion proposal for Baxalta, a move Baxalta rejected. What Shire will do next is a key issue. In seeking to acquire Baxalta, Shire is moving forward with a strategic focus formed in 2013, when the company repositioned itself as a specialty biopharmaceutical company with a primary focus on specialized and rare diseases. The company named a new CEO, Flemming Ornskov, on April 30, 2013. Ornsko set forth a new strategic focus for Shire, which included integrating three separate segments (Specialty Pharmaceuticals, Human Genetic Therapies, and Regenerative Medicine) into four business units based on the therapeutic area of the company’s in-line products (rare disease, neuroscience, gastrointestinal, and internal medicine) and also in ophthalmics to support the development of Shire’s ophthalmic pipeline candidate as well as created a single R&D unit with a focus on rare diseases. In November 2013, Shire announced that its preclinical pipeline would focus only on rare diseases, and it discontinued other programs that were not within that purview.
If the deal were to proceed, the combined entity is projected to deliver product sales of $20 billion in 2020 with several $1 billion franchises in rare diseases. It would have more than 30 new product launches planned with approximately $5 billion incremental sales potential by 2020. The therapeutic focus of Baxalta is in hematology, immunology, and oncology .Baxalta’s portfolio includes a variety of additional differentiated therapies for the treatment of bleeding disorders and chronic and acute medical conditions, including hemophilia A, hemophilia B, acquired hemophilia, inhibitor treatments, primary immunodeficiency (PID) and alpha-1 antitrypsin deficiency. Baxalta is also investing in new disease areas, including oncology, as well as emerging technology platforms, including gene therapy and biosimilars. Baxalta said it plans to launch 20 new products by 2020.
10. New molecular entities. The number of approvals for new molecular entities (NMEs) is a key barometer for the pharmaceutical industry. In 2014, the FDA's Center for Drug Evaluation and Research approved 41 NMEs, a recent high. As of December 1, 2015, the FDA had approved 40 NMEs, keeping pace with last year’s levels and continuing an innovation surge for the pharmaceutical industry.