Mid-Year Pharma Review: What Should Be on Your Radar

So what have been the pressing developments in the pharmaceutical manufacturing value chain thus far this year? DCAT Value Chain Insights (VCI) examines the top 10 mergers and acquisitions, deal-making, and other news development thus far.

So far in 2016, key highlights include Teva’s pending $40.5 billion acquisition of Allergan’s generics business and Shire’s completed $32 billion acquisition of Baxalta to create a rare-disease-focused pharma company. VCI looks at the key deals, drug approvals, partnering, and manufacturing activity thus far in 2016.

A top 10 countdown for 2016
1. The $40.5 billion acquisition of Allergan’s generic business by Teva Pharmaceutical Industries. Teva’s proposed $40.5 billion acquisition of the generics business of Allergan is one of the largest deals expected to close in 2016. The deal, a friendly acquisition approved by the boards of both companies, was announced in November 2015. 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.

2. Shire’s $32 billion acquisition of Baxalta. In June 2016, Shire closed on its $32 billion acquisition of Shire, which creates a specialty biopharmaceutical company with a focus in rare diseases. The combined portfolio will have an expanded range of therapeutic areas with more than 60 programs in development, including over 50 that will address rare diseases and newly approved Baxalta products. Shire anticipates more than 30 recent and planned product launches from the combined pipeline, contributing approximately $5 billion in annual revenues by 2020. Baxalta was spun off from Baxter as a stand-alone biopharmaceutical company in 2015.

3. Sanofi and Boehringer Ingelheim’s multi-billion dollar business swap. Sanofi and Boehringer Ingelheim have signed contracts to secure the strategic transaction initiated in December 2015 that consists of an exchange of Sanofi’s animal health business (Merial) and Boehringer Ingelheim’s consumer healthcare (CHC) business. This step marks a milestone before closing of the transaction, which is expected by year-end 2016 and remains subject to approval by all regulatory authorities in different territories.

The strategic swap lays the foundation for both companies to reach size and scale in two pharmaceutical activities, respectively consumer healthcare for Sanofi, and animal health for Boehringer Ingelheim. Upon successful completion, Boehringer Ingelheim’s CHC business, with an enterprise value of EUR 6.7 billion ($7.4 billion), would be transferred to Sanofi and Sanofi’s Merial, with an enterprise value of EUR 11.4 billion ($12.6 billion), would be transferred to Boehringer Ingelheim. The transaction includes a cash payment to Sanofi of EUR 4.7 billion ($5.2 billion) to reflect the difference in value of the two businesses. Combining Merial and Boehringer Ingelheim’s current animal-health portfolio would more than double Boehringer Ingelheim’s animal health business to approximately EUR 3.8 billion ($4.2 billion) based upon 2015 global sales. With this transaction, Sanofi would integrate Boehringer Ingelheim’s CHC business in all countries except China. Joint CHC sales (excluding Venezuela) would amount to approximately EUR 4.9 billion ($5.4 billion) based upon 2015 global sales. Sanofi would enhance its position in several of its strategic categories: pain care, allergy solutions, cough & cold care, feminine care, digestive health, and vitamins, minerals, and supplements.

4. Pfizer and Allergan. The mega merger that wasn’t. In April 2016, Pfizer and Allergan called off their proposed $160 billion merger citing the US Department of Treasury’s issuance of temporary and proposed regulations to further reduce the benefits of and limit the number of corporate inversions, a move that the companies said created an adverse tax law change. Pfizer’s proposed $160 billion merger with the Dublin, Ireland-based Allergan, which the companies announced in November 2015 would have been the largest merger in the history of the pharmaceutical industry. Pfizer’s decision to pursue Allergan followed its interest in acquiring AstraZeneca in 2014, another mega merger for Pfizer that did not come to fruition. Pfizer announced in late May 2014 that it would not make a formal offer to acquire AstraZeneca following AstraZeneca’s decision to reject Pfizer’s non-binding $119-billion proposal. Pfizer’s interest in acquiring AstraZeneca was to build its pipeline and commercial portfolio, but it also had a financial component in establishing a new UK-incorporated holding company of the proposed combined company. The proposal for the deal 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. A key issue going forward for Pfizer is what may be on its horizon in terms of deal-making: will the company pursue another large-scale acquisition or build its portfolio through smaller-scale deals.

5. Biologics manufacturing investment on the rise. This year has seen several announced biologics manufacturing investments, a continuing trend. Shire announced earlier this year that it plans to expand its global biotechnology manufacturing capacity over the next four years by investing $400 million in Ireland. The company will create a biologics manufacturing campus, which it expects will lead to the creation of approximately 400 permanent jobs on a 120-acre site at Piercetown, County Meath. Construction of the new site will begin in mid-2016 with the site expected to be operational by mid-2019.

Earlier this year, Bristol-Myers Squibb completed a major expansion at its facility in Devens, Massachusetts. The $280- million project added two new buildings to the 89-acre Devens campus: a Biologics Development Building for designing processes for the early production of investigational medicines, and a Clinical Manufacturing Building where investigational medicines will be produced to support clinical trials. Both are new capabilities for Devens, a site that had previously focused solely on large-scale, bulk biologics manufacturing.

Bristol-Myers Squibb also plans to open a new EUR 900 million ($1.02 billion) large-scale biologics manufacturing facility in Cruiserath, County Dublin, near Blanchardstown that will produce multiple therapies for the company’s growing immuno-oncology portfolio. The manufacturing facility is estimated to be operational in 2019. The new large-scale facility follows the company’s $750-million investment for a new biologics bulk manufacturing facility in Devens. 

Pfizer also reported in June that it will invest approximately $350 million in the development of a Global Biotechnology Center in the Hangzhou Economic Development Area in China. The facility will be Pfizer’s third biotechnology center globally and the first in Asia. It will ensure the local production of biosimilar medicines that will benefit patients both in China and globally, said Pfizer.

These investments are in addition to other recent large-scale investments. In December 2015, Boehringer Ingelheim announced an approximate EUR 500 million ($568 million) investment for a new large-scale biopharmaceutical production facility for active ingredients manufactured using cell cultures at its site in Vienna, Austria.

In 2014, AbbVie announced it will invest $320 million to establish operations in Singapore for small-molecule and biologics active drug substance manufacturing. The completed facility will provide manufacturing capacity for emerging compounds within AbbVie’s oncology and immunology pipeline to serve markets globally. The investment will establish the first manufacturing presence in Asia by AbbVie. AbbVie anticipates the new facility will be fully operational by 2019.

In November 2014, AstraZeneca announced plans to expand its biologics manufacturing center in Frederick, Maryland. The more than $200-million project will increase production capacity at the facility to support AstraZeneca’s maturing pipeline and to meet future demand for its biologics portfolio, which currently represent nearly 50% of AstraZeneca’s overall pipeline, according to the company. AstraZeneca’s Frederick biologics manufacturing center is a FDA-licensed, large-scale cell-culture production facility with administrative, production, warehouse, laboratory and utility space. The expansion project is expected to be complete in mid-2017 and will add approximately 40,000 additional square feet of manufacturing, laboratory, and administrative space.

Novartis is proceeding with a major biomanufacturing investment. In 2012, the company announced the planned construction of a new biotechnology production site in Singapore with a planned investment of more than $700 million. The new facility will focus on drug substance manufacturing based on cell culture technology. Ground was broken in February 2013, and construction was completed in the third quarter of 2015 for Phase One of the project. The company expects Phase One of this project to be operational in 2017 and Phase Two in 2019. It will be co-located with the company’s pharmaceutical production site based in Tuas, Singapore. In the future, Singapore is expected to be a technological competence center for both biotechnology and pharmaceutical manufacturing at Novartis.

6. The new Bayer as a pure-play life-sciences player. Having successfully floated its material sciences business, Covestro, Bayer is now positioned as a pure-play life sciences company with projected 2016 sales in its life sciences business of approximately EUR 35 billion ($40 billion). Bayer’s focus on life sciences is being led by Werner Baumann, who became chairman of the board of management of Bayer AG on May 1, 2016, succeeding Marijn Dekkers. Bayer took on a new corporate structure in January 2016 with three divisions: pharmaceuticals, consumer health, and crop science, and a separate business unit, animal health. Bayer’s former MaterialScience subgroup, renamed Covestro, became legally and economically independent on September 1, 2015, and Covestro AG was floated on the stock market in October 2015. Bayer currently still owns around 69% of Covestro. Bayer’s first large-scale move in life sciences in 2016 was in its crop science business with a $62 billion takeover bid of the agricultural chemical and seed company, Monsanto, which was rejected by Monsanto in May 2016.

7. Resurgence of the US pharmaceutical market. Total spending on medicines in the US reached $310 billion in 2015 on an estimated net price basis, up 8.5% from the previous year, according to the IMS Institute for Healthcare Informatics. Specialty drug spending reached $121 billion on a net price basis, up more than 15% from 2014. Spending on specialty medicines in the US has nearly doubled in the past five years, contributing more than two-thirds of overall medicine spending growth between 2010 and 2015. Increased specialty spending was driven primarily by treatments for hepatitis, autoimmune diseases and oncology, which accounted for $19.3 billion in incremental spending. Overall, 2015 saw a 21.5% spending increase for specialty medicines to $150.8 billion on an invoice price basis.

8. The merger of Dow Chemical and DuPont. Expected to close later in 2016 is the mega merger, first announced in 2015, of Dow Chemical and DuPont in an all-stock merger of equals in a deal valued at $120 billion.. The combined company will be named DowDuPont.. A combined Dow Chemical and DuPont would generate pro forma sales of approximately $83 billion, placing it as the number one chemical company in the world ahead of the current number one global chemical company, BASF.

The plan, however, is to break the company into three separate standalone companies, one specializing in agricultural chemicals, a second in plastics and other materials, and a third in specialty products, which would include electronics, nutrition, and health. The merger transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals, and approval by both Dow and DuPont shareholders. The subsequent separation of DowDuPont, which the companies intend to pursue, would be expected to occur 18-24 months following the closing of the merger. The transaction is expected to deliver approximately $3 billion in cost synergies, with 100% of the run-rate cost synergies achieved within the first 24 months following the closing of the transaction. Additional upside of approximately $1 billion is expected from growth synergies.

9. New molecular entities. Through June 28, 2016, the US Food and Drug Administration’s (FDA) Center for Drug Evaluation and Research (CDER) has approved 14 new molecular entities (NMEs). In 2015, FDA’s CDER approved 45 NMEs, a recent high, surpassing 2014’s level of 41 NME approvals and 2012’s 39 NME approvals. The recent uptick in NME approvals is positive for the industry and continues an upward trajectory following a low period of NME approval. From 2004 to 2012, CDER averaged 26 NME approvals per year, which was bolstered by approval levels in 2012 and 2013. The period of 2005 to 2010 was a slower period for NME approvals. In 2005, 20 NMEs were approved, 22 in 2006, 18 in 2007, 24 in 2008, and 26 in 2009. Key for the industry in 2016 is whether these upward trends will continue.

10. Sanofi’s pursuit of Medivation. Sanofi is continuing its pursuit of acquiring the biopharmaceutical company, Medivation, most recently upping its bid to approximately $10 billion this week. Sanofi is one of several companies interested in acquiring Medivation. Sanofi has entered into a confidentiality agreement with Medivation under which Sanofi will be provided due diligence access and confidential information. Sanofi also confirmed that on June 27, 2016 it advised Medivation that upon signing a confidentiality agreement and being provided information, Sanofi would increase its offer to $58.00 in cash and $3.00 in the form of a contingent value right (CVR) relating to talazoparib sales performance. Under the confidentiality agreement, Sanofi has agreed to a customary standstill for six months subject to limited early termination events and has agreed to withdraw its consent solicitation. Sanofi had earlier bid $9.3 billion for Medivation, an offer that Medivation had rejected. The new offer is approximately $10 billion. Talazoparib is an orally available poly-ADP ribose polymerase, or PARP, inhibitor, which is currently is in a Phase III clinical trial for the treatment of patients with gBRCA mutated breast cancer (i.e., advanced breast cancer in patients whose BRCA genes contain germline mutations). The company is also targeting a number of other solid tumor indications in which to investigate talazoparib, including breast (beyond gBRCA mutations), prostate, small cell lung, and ovarian cancers.

Sanofi first made a bid to acquire Medivation Medivation in late April and again in early May. Sanofi then took the strategy of seeking to replace the Medivation board, a process that was expected to end no later than August 1.

Medivation’s key product is Xtandi (enzalutamide), a drug to treat prostate cancer, for which it is partnered with Astellas. In its first-quarter earnings release, Medivation reported that US net sales of Xtandi, as reported by Astellas, are expected to range between $1.425 and $1.525 billion in 2016. Sanofi’s strategic rationale to acquire Medivation is based on a strategy to replace revenue losses for its top-selling drug, Lantus.

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