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The elusive search for change


No matter where you go, no matter what circles you travel in the conversation is always the same: the model is broken and the industry is the slipstream of big change. It’s not shocking anymore to be at a CEOs' dinner and have the attendees nod in agreement that the large-scale model is broken; companies need to change.


The underlying assumption to this thought, pervasive and well-known, include R&D productivity and efficiency; strained healthcare budgets, regulatory scrutiny, payers’ increasing demand for relative value and generic competition, reputation and a new model/place with society, and changing markets and practice with providers. Basically, it’s everything.

So where is all the change? There is movement, flashes and uncertain weight shifts to and fro, like a school kid uncertain of what to do at the dance. There are integrated and non-integrated additions of biosimilar programmes; efforts to build specialty and orphan portfolios, there are cost and infrastructure adjustments – including precious R&D budgets – with job cuts often tied to mergers and acquisitions, resources aimed at emerging markets, selling model adjustments and pilot programmes.

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Survival of the fittest


It’s finally here. For a while, a dark cloud has been looming ominously over the industry and, on this occasion, when it rains, it pours. Billions of dollars in revenues are set to be washed away from the P&L sheets of leading pharmaceutical companies as some of their most prized assets, their blockbuster drugs, suffer the consequences of patent expiry.


This is not, of course, the first time big-name pharmaceutical brands have faced generic competition – past examples include Zocor (simvastatin), Losec (omeprazole) and Zoloft (sertraline). But the sheer volume of expiries through 2011 and 2012 is unprecedented.

Datamonitor estimates that an additional $94 billion in global revenues will be at risk from generic erosion by the end of 2012, triggering a downward growth curve, the steepness of which has led to the coining of a phrase now ubiquitous in the industry, the ‘patent cliff’. While not all revenues will be seized by generic equivalents, at least not overnight, companies at the edge of the patent cliff are staring down into an annual sales void of more than $40 billion by as soon as 2013.

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M&A Watch : 34 of the Largest Deals of the Year

Buyer
Country Target Country Focus Date
completed
Amgen US BioVex US biotechnology company Mar-11
Aspen Pharmacare
 South
Africa		 Sigma Pharmaceuticals’ drug
manufacturing operations 		Australia pharmaceutical manufacturing
facility		 Jan-11
Axcan Holdings

US Eurand The Netherlands speciality pharma Feb-11
Pfizer

US King Pharmaceuticals US drug development and
commercialisation		 Feb-11
Sanofi France BMP Sunstone China OTC and consumer healthcare Feb-11
Shanghai Pharmaceutical China China Health System China pharmaceutical distributor Jan-11
Teva

Israel Theramex (Merck KgaA) Italy speciality women’s healthcare
pharmaceutical company		 Jan-11
Valeant Pharmaceuticals USA PharmaSwiss Switzerland generics and OTC manufacturer Mar-11
Alkermes

US Elan's subsidiary, Elan Drug
Technologies 		Ireland drug delivery Sep-11
Baxter International US Prism Pharmaceuticals US cardiovascular May-11
Cilag GmbH (Johnson &
Johnson)
 US JB Chemicals & Pharmaceuticals'
OTC medicines business		 India   Jul-11
Daiichi Sankyo Japan Plexxikon US drug discovery and development Apr-11
Forest Laboratories US Clinical Data US biotechnology company Apr-11
FUJIFILM

Japan Merck & Co's biotech manufacturing
facilities MSD Biologics Ltd and
Diosynth RTP		 US biopharmaceutical manufacturing Apr-11
Gilead Sciences
US Calistoga Pharmaceuticals US biotechnology company Apr-11
Grifols Spain Talecris Biotherapeutics US drug discovery and development Jun-11
IS Pharma UK Sinclair Pharma UK dermatology and wound care Sep-11
Johnson & Johnson

US Crucell The
Netherlands		 biopharmaceutical company Apr-11
Kyowa Hakko Kirin

Japan ProStrakan UK drug development and
commercialisation		 Apr-11
Meda Sweden Antula Healthcare Sweden OTC medicines Apr-11
Merck & Co
US Inspire Pharmaceuticals US speciality pharma - ophthalmic
products		 May-11
Novartis
Switzerland Alcon Switzerland manufacturer - ophthalmology
products		 Apr-11
Sanofi France Genzyme US biopharmaceuticals Apr-11
Takeda Japan Nycomed Denmark biopharmaceuticals Sep-11
Teva Israel Cephalon US biopharmaceuticals Oct-11
Teva
 Israel Taiyo Pharmaceutical Japan generics Jul-11
Watson Pharmaceuticals US Specifar Pharma Greece generics May-11
Bristol-Myers Squibb

US Amira Pharmaceuticals US small molecule discovery and
development		 Sep-11
Grifols Spain Talecris Biotherapeutics USA drug discovery and development Jun-11
Kohlberg Kravis Roberts & Co US Pfizer's Capsugel capsules business US capsules Aug-11
Par Pharmaceutical US Anchen Pharmaceuticals US biopharmaceuticals Nov-11
Perrigo US All the assets of Paddock Laboratories US generics Aug-11
Teva Israel Taiyo Pharmaceutical Japan generics Jul-11
Valeant Pharmaceuticals US Sanitas Lithuania generics Aug-11
Source: Scrip Market Data

Form an orderly queue


Following the announcement on 19 October that Abbott Laboratories is to separate its prescription pharmaceutical unit from its other business units, speculation has turned to whether a rival big pharma player will make a move to acquire Abbott’s prescription portfolio, which is heavily focused on the anti-TNF biologic therapy Humira (Scripintelligence.com 20 October 2011).


The financial community is split on the issue: while a note from Jefferies analysts suggested that Merck & Co., Bayer AG, Roche or AstraZeneca could all be potential acquirers, Sanford C. Bernstein has taken a very different view, indicating that no big pharma player will perceive the Abbott business as an attractive takeover prospect.

Writing off acquisition completely may be short sighted: Whatever protestations companies make about large-scale M&A being a thing of the past, this industry that has been built squarely on such activity. Ultimately, the acquisition of Abbott would be dictated by the driver of increased scale and cost cutting abilities and, with Humira accounting for around a third of sales, one could assume that an increased presence in biologics would be another attraction for acquiring the unit.

On the same note, however, the significance of Humira to the overall portfolio would effectively rule out other players who already have similar anti-TNF products. On this basis, one might discount Pfizer, Merck & Co. and Johnson & Johnson. In addition, it might also rule out companies with products that compete with Humira such as Roche and Bristol-Myers Squibb.

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