Consolidation in the Pharmaceutical Industry Charles Baum, MD, MS, FACG Vice President and Head US...

Consolidation in the Pharmaceutical

IndustryCharles Baum, MD, MS, FACG

Vice President and Head US Medical AffairsTakeda Pharmaceuticals USA

Bio-Pharma M&A History

• 30 y consolidation: ~110 companies >>> 30• Early – national consolidation (e.g., Glaxo, Welcome and Smith/Kline)• Later

– US market serves as nidus for small overseas companies– Multinational consolidation

David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

The History of Bio-Pharma M&A's: Pfizer

David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

10 companies >>>>> 1

The History of Bio-Pharma M&A's: Sanofi

David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

18 companies >>>>> 1

Historical Drivers of M&A• 1980's (profit pressure)

- Rising R+D costs- Passage of Waxman Hatch Act- Price competition from generics

• 1990's (declining profits)- LOE and end of blockbuster era- Rise of buyer-side market power (MCOs/PBMs)

• 2000's (single digit growth)- Shrinking Pipelines and Emergence of bio-techs- Overcapacity drives branded pharma M&A- Eliminating competition drives generics manufacturers M&A

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

5

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20

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Annual Number of Pharmaceutical Mergers (2004-2014)

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1 Bi

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https://www.levinassociates.com/dealsearch

Overcapacity Drives M&As

• M&As result in cost savings of 30-40% appeasing investors• Restructuring of Development and Commercial functions

- Strategic shift from "me too" to novel specialty and orphan indications- New commercial models that leverage lower cost multi-channel/digital

marketing- A shift from salesforce to value-based contracts with payers and health

systems (IDNs)- Reduce research investment in favor of biotech partnerships and acquisitions.- Outsourcing

William Pursche: The McKinsey Quarterly, 1996

M&As Drive Global Footprint:Example -Takeda and Nycomed Merger

Low Interest Rates Favorable Exchange Rates

Medicaid Spending and Prescriptions for Albendazole (Amedra Pharma) and Mebendazole (Terminated by Teva)

High Cost Generic Drugs – Implications for patients and policymakers. Alpern et al., NEJM 371;20:1859-1862

Generics Manufacturers and Pricing

• Turing Pharmaceuticals- Martin Shkreli raises price of generic Daraprim (pyramethamine) from $13.50 to $750 per tab – used to treat life threatening toxoplasmosis infections in HIV and cancer patients

• Valeant has acquired 100 drugs and increased price of 56 drugs by average of 66%- The case of Isuprel and Nitropress (525% and 212% increases)- Ascension health has calculated cost impact for its system of ~$8 M.

• PhRMA speaks out

Despite Several Bad Actors Generic Drug Prices Continue to Fall

http://www.aarp.org/content/dam/aarp/ppi/2015/trends-in-retail-prices-of-generic-prescription-drugs.pdf

Impact of Consolidation for InnovatorsFinancial• Reduction in competition drives bargaining power with payers• Tax implicationsEfficiency• Greater expertise, deal making agility, regulatory successInnovation• Focused pipelines – specialty pharma, oncology and orphan

indications• Emphasis on Inorganic Growth

- Increase in venture capital and fostering of biotech- Academic partnerships

FDA Approvals Indicate M&As Have Positive Effect on Pharmaceutical Innovation

http://www.fda.gov/drugs/developmentapprovalprocess/druginnovation/ucm20025676.htm

Number of US Biotech Companies is Growing

27% Increase

since 2012

Public Co. Private Co. Total

http://www.statista.com/statistics/197930/number-of-united-states-biotech-companies-by-type/

Looking Beyond M&A

• Partnerships (basic and foundational research, co-promotion and co-development/commercialization arrangements)• Spinoffs and divestitures• Asset swap deals• ACA is helping drive alignment between payers, healthcare and

pharmaceutical manufacturers• Moving "beyond the pill" is driving non-traditional business

development