2014: The Pharma Year in ReviewBy
What were the key events shaping the global pharmaceutical industry in 2014? DCAT Value Chain Insights (VCI) reviews the highlights from 2014.
The end of the year is typically a time of reflection, and in looking back at 2014, what were the key events shaping the pharmaceutical industry? Without question, 2014 is marked by the year of the mega-merger, noteworthy for large-scale acquisitions that were completed and for those that were considered. Among completed deals, Actavis stands out for its pending $66 billion acquisition of Allergan and its completed $28-billion acquisition of Forest Laboratories. But 2014 is also noteworthy for two deals that did not proceed: Pfizer’s interest in acquiring AstraZeneca for $119 billion and AbbVie’s nearly $55-billion acquisition of Shire. A look at these and other key deals and events from 2014.
Examining the mega-mergers made and almost made
Actavis’ $66-billion bid for the specialty pharmaceutical company Allergan was the second major acquisition for Actavis this year following its $28-billion acquisition of Forest Laboratories, which was completed in July 2014. The transaction, subject to shareholder approval and customary closing conditions, has been unanimously approved by the boards of directors of Actavis and Allergan and is supported by the management teams of both companies. If the deal proceeds as planned, a combined company of Actavis and Allergan would have 2015 pro forma revenues in excess of $23 billion, making it one of the top 10 global pharmaceutical companies. The transaction is anticipated to close in the second quarter of 2015. The combined company will be led by Brent Saunders, CEO and president of Actavis, and Paul Bisaro, who will remain as executive chairman of the board of Actavis. Actavis acquired Allergan following an unsuccessful effort by Valeant Pharmaceuticals to acquire Allergan. Also, in November 2014, Actavis completed its $675 million acquisition of the specialty pharmaceutical company, Durata Therapeutics.
The year 2014 was also noteworthy for the large mega-deals that did not come to fruition. Pfizer did not proceed with a $119 billion proposal to acquire AstraZeneca following AstraZeneca’s stated interest to stay as a stand-alone entity. The proposal for the deal also brought to the fore the issue of corporate inversion, a practice by which a US-based multinational company restructures so that the US parent is replaced by a foreign corporation as a means to achieve a lower tax rate. The financial benefits of tax inversion were part of the rationale cited by Pfizer for its interest in acquiring AstraZeneca, along with complementary strengths in the companies’ commercial portfolios and drug pipelines.
The proposed nearly $55-billion merger of Shire and AbbVie, which was first announced in late June, seemed to be going smoothly until a notice issued by the US Department of Treasury in late September that addressed the issue of corporate tax inversion by limiting its practice and signaling possible future rule-making on the issue. Facing that uncertainty and without the financial benefit of an inversion structure to achieve tax relief, AbbVie decided to terminate the deal. AbbVie’s proposed acquisition proposal 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 which was to be incorporated in Jersey, the UK, Shire’s current 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.
Another key deal from 2014 was the proposed three-part transaction between Novartis and GlaxoSmithKline (GSK), which is expected to close in the first half of 2015. Under the proposed deal that was announced in April 2014, Novartis and GSK will combine their consumer heatlhcare businesses into a joint venture, GSK will divest its oncology products to Novartis, and GSK will acquire Novartis’ vaccine business (excluding flu). GSK said in a statement that the proposed transaction is “the most significant transaction for the company since the creation of GSK in 2000 and is a major step towards fulfilling the company’s strategy of creating a simpler, stronger, and more balanced platform for long-term growth.”
Under the proposed deal, Novartis agreed to acquire GSK oncology products for a $14.5-billion payment and up to $1.5 billion contingent on a development milestone, the results of the COMBI-d trial, a Phase III study evaluating the safety and efficacy of the combination of two drug candidates to treat metastatic melanoma: Tafinlar and Mekinist. In addition, Novartis would have opt-in rights to GSK’s current and future oncology R&D pipeline. Sales of the acquired GSK oncology products in 2013 were approximately $1.6 billion. Key products from GSK’s oncology portfolio are Tafinlar and Mekinist, Votrient (a VEGFR inhibitor for treating renal cell carcinoma), Tykerb (for treating HER2+ metastatic breast cancer), Arzerra (for treating chronic lymphocytic leukemia); and Promacta (for treating thrombocytopenia).
Novartis also agreed to divest its vaccines business to GSK, excluding its flu business, for $7.1 billion plus royalties. The $7.1 billion consists of $5.25 billion upfront and up to $1.8 billion in milestones.The deal strengthens GSK’s position in pediatric and meningitis franchises, which include Bexsero, a new vaccine for prevention of meningitis B. 2013 actual net sales of Novartis’ vaccines (including flu) business were approximately $1.4 billion.
Novartis and GSK also agreed to create a consumer healthcare business through a joint venture between Novartis OTC and GSK Consumer Healthcare. If approved, GSK will have majority control with an equity interest of 63.5%, and Novartis will own a 36.5% share of the joint venture. The joint venture of Novartis OTC and GSK Consumer Healthcare would establish a consumer healthcare company with $10 billion in annual sales positioned in four over-the-counter (OTC) categories: wellness, oral health, nutrition, and skin health. The joint venture would have several strong brands with almost half of the sales derived from brands larger than $300 million in annual revenue. Also, In a separate deal, Novartis agreed to divest its animal-health business to Eli Lilly.
Other key activity
In other deals, Bayer strengthened its OTC business with its $14.2 billion acquisition of the consumer care business of Merck & Co., Inc., and its acquisition of Dihon Pharmaceuticals in China. Also, in December, Merck & Co. agreed to acquire Cubist Pharmaceuticals, a biopharmaceutical company focused on the discovery, development, and supply of antibiotics to treat serious and potentially life-threatening infections caused by a broad range of increasingly drug-resistant bacteria, for $9.5 billion. 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. The deal is expected to close in the first quarter of 2015.
In a major management change, in October 2014, Sanofi removed Christopher A. Viehbacher as CEO and replaced him on an interim basis with Serge Weinberg, currently chairman of Sanofi, until a new CEO is named. In taking making the move, Sanofi pointed to management and execution issues of the former CEO, particularly with respect to the sales management of the company’s diabetes drug, Lantus (insulin glargine). Lantus was Sanofi’s top-selling drug in 2013 with sales of EUR 5.7 billion ($7.1 billion). In its third-quarter 2014 earnings announcement, Viehbacher had pointed to a “more challenging US diabetes price environment” that would impact the company’s diabetes sales throughout 2015. Weinberg also referred to overall performance issues, citing that the company performed below expectations in three of the fourth quarters in 2013 as well as other execution problems, which included previously announced issues in 2013 with the company’s generic-drug business in Brazil. During the second quarter of 2013, Sanofi determined that generic inventory levels in trade channels in Brazil were “significantly and inappropriately in excess of volumes needed to satisfy sell out demand,” as it explained in its second-quarter 2013 earnings release. The result was that the company lowered net sales by EUR 122 million ($153 million) in the second-quarter of 2013 and recorded a charge of EUR 79 million ($99 million) for the write-off of inventory and other related costs.
Activity among suppliers and contract manufacturers
Among suppliers, Merck KGaA’s announced $17-billion acquisition of Sigma-Aldrich in September 2014 signals 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 mid-year 2015, subject to regulatory approvals 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.
Another key move was the initial public offering of Catalent Inc., the parent company of Catalent Pharma Solutions. Catalent said that the proceeds of the offering will be principally used to redeem more than $800 million (estimated at midpoint) of Catalent’s outstanding debt. The company says that this will allow the company to reduce its interest expense, enable internal and external growth strategies, and continue investments into new technologies, capabilities, global development, and manufacturing facilities and capacity. Examples of recent investments include new facilities for the company’s softgel and clinical supply businesses in China and Brazil, a new $20-million Biologics Center of Excellence for cell-line development and biomanufacturing in Madison, Wisconsin, and a $35-million ongoing expansion in the company’s Oral Advanced Technologies manufacturing site in Winchester, Kentucky. The company also recently acquired acquired the remaining stake in Redwood Bioscience Inc., which includes the SMARTag Antibody-Drug Conjugate (ADC) technology platform. Other investments announced by Catalent in 2014 include: plans to install new automated prefilled syringe clinical packaging lines at its Philadelphia Clinical Supply Center of Excellence; plans for a dedicated laboratory at its Kakegawa, Japan site to provide proof-of-concept support and feasibility studies for Catalent’s proprietary Zydis Orally Dispersible Tablet (ODT) technology; and an expansion of manufacturing capacity for its OptiGel Micro softgel technology.
In September 2014, DPx Holdings B.V., privately owned by JLL Partners and Royal DSM and the parent company of Patheon, completed the transaction to acquire Gallus BioPharmaceuticals, LLC, a contract manufacturing company specializing in biologics. Patheon’s biologic drug substance business, a unit of DPx Holdings, now includes four global facilities in Europe, Australia, and North America and more than 550 employees. The addition of Gallus BioPharmaceuticals provides Patheon with additional biologics capabilities, namely process development as well as clinical- and commercial-scale manufacturing of mammalian cell-culture derived products. Patheon gained drug-substance biologics capability with the merger of Patheon and DSM Pharmaceutical Products to form DPx Holdings, a deal which was completed in March 2014, and the subsequent integration of the Biosolutions and Biologics businesses of DSM Pharmaceutical Products into Patheon.
In another deal of specialty and fine chemicals, Albemarle Corporation and Rockwood Holdings, Inc. have entered into a definitive agreement under which Albemarle will acquire all outstanding shares of Rockwood in a cash and stock transaction valued at approximately $6.2 billion. The boards of directors of both companies have approved the transaction. The transaction is subject to shareholder and regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2015.
In November, Consort Medical plc completed its acquisition of the contract development and manufacturing organization (CDM), Aesica Pharmaceuticals Limited for Â£230 million ($373 million). Consort Medical is focused on developing and manufacturing disposable medical devices for drug delivery, including inhaled, nasal and injectables products through its core operating division, Bespak.
In 2014, AMRI completed two important acquisitions: OsoBio and Cedarburg Pharmaceuticals. OsoBio is a manufacturer of injectable drug products. Its expertise in large-scale commercial production is complementary to AMRI’s early-stage drug product manufacturing capabilities. The acquisition enables AMRI to provide sterile fill/finish services from Phase I development to commercial supply. OsoBio is located in Albuquerque, New Mexico. Its core capabilities include liquid fill and lyophilized products, highly potent compounds, cytotoxics, proteins and peptides, monoclonal antibodies, vaccines, liposomal suspensions, and controlled substances. Cedarburg Pharmaceuticals, based in Grafton, Wisconsin, is a contract developer and manufacturer of active pharmaceutical ingredients (APIs) and intermediates for both generic and branded pharmaceuticals.
In October 2014, Recipharm AB, a CDMO based in Jordbro, Sweden, completed its acquisition of Milan-based Corvette Pharmaceutical Services Group from the Italian private equity Group LBO Italia Investimenti s.r.l. for EUR 120 million ($160 million). Corvette Pharmaceutical Services Group (consisting of Corvette Group SpA and LIO Immobiliare s.r.l.) has three manufacturing facilities located in the Milan region of Northern Italy. Each facility specializes in a different technology and business area. Masate has a sterile injectable manufacturing facility with capabilities for both lyophilization and liquid filling of vials and ampuls, including hormones. Paderno Dugnano has an API and finished dose form development and manufacturing facility with a number of owned product rights, including erdosteine, an important mucolytic product. The facility supplies the global market, including the US and Japan. Lainate offers bulk lyophilization of sterile beta-lactam antibiotics supplied to numerous markets se and active pharmaceutical ingredients (APIs).