Mid-Year Review: The Top 10 Deals Thus Far

Johnson &Johnson’s $30-billion buy of Actelion is the leading deal thus far in 2017, but what other deals have made the mark?

The supplier side adds to important deals: Thermo Fisher’s pending $7.2 billion acquisition of Patheon and AMRI’s pending acquisition by private equity firms. So what other deals are making the mark thus far in 2017?

The top 10 deals thus far in 2017
1. J&J’s $30-billion acquisition of Actelion. By far, the largest deal thus far in 2017 is Johnson & Johnson’s (J&J) $30-billion acquisition of Actelion, a Swiss pharmaceutical company. The move provides J&J with a specialist in pulmonary arterial hypertension with a $1-billion plus franchise as J&J seeks to add assets to offset generic competition for its top-selling pharmaceutical, Remicade (infliximab), an anti-inflammatory drug. J&J expects the acquisition of Actelion to add approximately $1.3 billion in sales for 2017. Actelion specializes in the field of pulmonary arterial hypertension, a chronic disorder characterized by abnormally high blood pressure in the arteries between the heart and lungs. The pulmonary arterial hypertension franchise leads Actelion’s product sales and encompasses oral, inhaled, and intravenous formulations of compounds for patients at various stages of the disease.

Led by its pulmonary arterial hypertension franchise, Actelion had 2016 product sales of CHF 2.41 billion ($2.47 billion). Actelion’s pulmonary arterial hypertension franchise sales were driven by its top-selling product, Tracleer (bosentan), an orally available endothelin receptor antagonist for treating pulmonary arterial hypertension, which posted 2016 sales of CHF 1.02 billion ($1.05 billion) and Actelion’s next-generation pulmonary arterial hypertension product, Opsumit (macitentan)‎ with 2016 sales of CHF 831 million ($853 million). It also has several drugs for treating specialist diseases, including Type 1 Gaucher disease, Niemann-Pick type C disease, digital ulcers in patients suffering from systemic sclerosis, and mycosis fungoides in patients with cutaneous T-cell lymphoma.

For J&J, the acquisition of Actelion adds a rare-disease focus to the company’s pharmaceutical business, which posted 2016 sales of $33.4 billion. The Actelion acquisition adds a sixth therapeutic focus to J&J. J&J is now focused on five therapeutic areas: immunology (e.g., rheumatoid arthritis, inflammatory bowel disease, and psoriasis); infectious diseases and vaccines (e.g., HIV, hepatitis, respiratory infections, and tuberculosis), neuroscience (e.g., Alzheimer’s disease, mood disorders, and schizophrenia), oncology (e.g., prostate cancer, hematologic malignancies, and lung cancer), and cardiovascular and metabolic diseases (e.g., thrombosis and diabetes).

2. Thermo Fisher Scientific pending $7.2-billion acquisition of Patheon. On the supplier side, the large deal thus far in 2017 is Thermo Fisher Scientific’s pending $7.2 billion acquisition of Patheon, a contract development and manufacturing organization of active pharmaceutical ingredients (APIs) and drug products. Thermo Fisher announced the acquisition in May 2017 with the deal expected to close by the end of 2017.

The acquisition of Patheon provides Thermo Fisher with small- and large-molecule development and manufacturing capabilities as well as formulation development and drug product manufacturing. Thermo Fisher’s products and services support research, clinical trials, and production and includes clinical trials logistics services. Patheon, which has approximately 9,000 employees worldwide, generated 2016 revenue of approximately $1.9 billion and will become part of Thermo Fisher’s Laboratory Products and Services segment. Thermo Fisher expects to realize total synergies of approximately $120 million by year three following the close of the deal, consisting of approximately $90 million of cost synergies and approximately $30 million of adjusted operating income benefit from revenue-related synergies.

For Patheon, its pending acquisition by Thermo Fisher continues a multiyear process in which the company has been pursuing a strategy of becoming an end-to-end contract services provider of active ingredients (both small molecules and biologics) and its historical core competency in formulation development and drug product manufacturing. The key deal for Patheon dates back to 2014 with the formation of DPx Holdings B.V., privately owned by the private-equity firm JLL Partners (51%) and Royal DSM (49%), which was the result of a $2.65-billion deal between Patheon and DSM completed in March 2014. Since 2012, in addition to DSM Pharmaceutical Products, Patheon has been active on the acquisition front with key acquisitions to build both its active ingredient service capabilities and formulation development and drug product manufacturing capabilities: Banner Pharmacaps, Gallus BioPharmaceuticals, Agere Pharmaceuticals, IRIX Pharmaceuticals, and a former Roche API manufacturing in Florence, South Carolina.

3. Avantor’s pending $6.4-billion acquisition of VWR. In another large-scale deal of suppliers, Avantor, a supplier of ultra-high-purity materials for the life sciences and advanced technology industries, announced in May 2017 that it had agreed to acquire VWR, a provider of product, supply-chain, and service solutions to laboratory and production customers, for approximately $6.4 billion.

Avantor’s acquisition of VWR will create a consumables-focused solutions and services provider to the life sciences and advanced technologies industries as well as education, government, and research institutions.The combined company will be led by Michael Stubblefield, current chief executive officer of Avantor. Avantor provides performance materials and solutions for the production and research needs of approximately 7,900 customers across the biotechnology, pharmaceutical, medical device, diagnostics, aerospace and defense, and semiconductor industries. Avantor’s product portfolio includes more than 30,000 products. VWR, headquartered in Radnor, Pennsylvania, is a provider of product and service solutions to laboratory and production customers with sales in excess of $4.5 billion in 2016, The acquisition will build on each company’s strengths, including Avantor’s cGMP manufacturing processes and exposure to emerging markets and VWR’s position across the Americas and Europe.

The board of directors of both VWR and Avantor have both approved the acquisition. Completion of the transaction is subject to the expiration of a “go-shop” period, the expiration or termination of the applicable waiting period under Hart-Scott-Rodino Antitrust Improvements Act, European Commission approval, required clearance, consent or approval under applicable foreign antitrust laws, VWR shareholder approval, and other customary closing conditions. The transaction is expected to close in the third quarter of 2017.

4. Stada in $5.6-billion buyout. In April 2017, Stada Arzneimittel AG, a Bad Vilbel, Germany-headquartered pharmaceutical company, signed an investor agreement with Bain Capital, a Boston-based private investment firm, and Cinven Partners, a London-based private equity firm, in support of Bain and Cinven’s bid of EUR 66.00 ($69.93) per share to acquire Stada in a deal valued at EUR 5.318 billion ($5.63 billion).

Stada’s decision to support Bain and Cinven’s bid came after talks with all interested parties that bid to acquire the company. In February 2017, Stada announced that it had opened up talks with potential bidders for the company and soon after received bids from three parties: a EUR 58.00 ($61.44)-per-share bid from Advent International, a Boston-based private-equity firm; a EUR 56.00 ($59.32)-per-share bid from Cinven; and a EUR 58 ($61.44)-per-share bid from a third undisclosed party. Stada then carried out a structured bidding process and achieved an improvement in the bids, creating approximately EUR 750 million ($795 million) in additional value for its shareholders, the company said.

The investor agreement with Bain and Cinven would include protection provisions for employees, production sites, and the Stada corporate strategy. Stada’s executive and supervisory boards will review the offer document upon its publication, and both boards are currently expected to recommend the offer for acceptance to Stada’s shareholders. Bain and Cinven have agreed to provide both financial and strategic support for possible acquisitions to expand Stada’s product portfolio and tap new growth markets. Under the investor agreement, the location of Stada’s headquarters and of the sites of key business units will remain unchanged. Bain and Cinven have also stated their willingness to broadly refrain from business-related layoffs further than those already incorporated in the current business plans for four years. Stada’s core business is comprised of generics, which accounted for 59.9% of 2016 sales, and branded pharmaceuticals, which accounted for 40.1% of 2016 sales. The company had 2016 sales of EUR 2.14 billion ($2.27 billion).

5. Fresenius Kabi’s $5.5 billion buy of Akorn and the biosimilars business of Merck KGaA. In April 2017, Fresenius Kabi, a specialty and generic pharmaceuticals company and a subsidiary of Fresenius SE & Co. KGaA, a Bad Homburg, Germany-headquartered healthcare group, agreed to acquire Akorn, a Lake Forest, Illinois-headquartered specialty generic pharmaceutical company, and Merck KGaA’s biosimilars business in deals totaling approximately $5.5 billion.

The Akorn acquisition accounts for the larger portion of the $5.5 billion. Fresenius Kabi will purchase the company for $34 per share, or $4.3 billion, plus approximately $450 million of net debt, for a total of $4.75 billion. Fresenius Kabi will gain prescription and over-the-counter products, including injectables, topical creams, ointments and gels, and sterile ophthalmics as well as oral liquids, otic solutions, nasal sprays, and respiratory drugs. Akorn’s current product pipeline of pending abbreviated new drug applications has a QuintilesIMS market value of $9.3 billion, according to Fresenius Kabi. In addition to gaining a product portfolio, Fresenius Kabi, which provides contract sterile manufacturing services through its Fresenius Kabi Product Partnering division, will boost its contract sterile manufacturing capabilities with the acquisition of Akorn, which also offers that service. Akorn has five manufacturing facilities in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland; and Paonta Sahib, India.

Akorn’s board recommended approval of the transaction and merger agreement to Akorn’s shareholders. The transaction is subject to closing conditions, including regulatory review under the Hart-Scott-Rodino Antitrust Improvements Act in the US and approval by Akorn shareholders. The transaction is expected to close by early 2018.

Under the biosimilars business acquisition, which accounts for EUR 670 million ($733 million) of the total $5.5 billion value of the combined acquisitions, Fresenius Kabi will pay Merck KGaA an upfront payment of EUR 170 million ($186 million) in cash upon closing and milestone payments of up to EUR 500 million ($547 million) as well as single-digit percentage royalties on future product sales. Under the transaction, Fresenius Kabi and Merck KGaA have agreed to enter into supply and services agreements, which include drug development support and manufacturing services. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the second half of 2017.

6. Takeda’s $5.1-billion acquisition of Ariad Pharmaceuticals. Takeda Pharmaceutical closed on its $5.1-billion acquisition of Ariad Pharmaceuticals in February 2017 and with it, gained a potential noteworthy anti-cancer therapy. Following the acquisition, Takeda received accelerated approval from the US Food and Drug Administration (FDA) for Alunbrig (brigatinib) for treating anaplastic lymphoma kinase-positive (ALK+) metastatic non-small cell lung cancer (NSCLC) in patients who have progressed on or are intolerant to crizotinib. Alunbrig is a targeted cancer medicine discovered by Ariad Pharmaceuticals. The drug has the potential to reach peak annual sales of more than $1 billion, according to Takeda. Alunbrig received breakthrough therapy designation from the FDA for this indication and was granted orphan drug designation for treating ALK+, ROS1+, and epidermal growth factor receptor positive NSCLC. A marketing authorization application was submitted to the European Medicines Agency in February 2017. In addition, Takeda gained another targeted rare-cancer therapy, Iclusig (ponatinib), a commercialized leukemia drug. Iclusig is approved for chronic myeloid leukemia and a subset of acute lymphoblastic leukemia. The drug had 2015 sales of $112.5 million. Takeda also gains a pipeline that includes targeted kinase inhibitors as well as Ariad’s translational science-based research and development platform.

7. Parexel’s $5-billion private buyout. This week, Parexel, a contract research organization, agreed to be acquired by Pamplona Capital Management, an investment firm, for $88.10 per share or approximately $5.0 billion, including Parexel net debt. The deal would take the now publicly traded Parexel private. The transaction is expected to close early in the fourth quarter of 2017, subject to the approval of a majority of Parexel shareholders and the satisfaction of other customary closing conditions. Upon the completion of the transaction, Parexel will become a privately held company, and shares of Parexel’s common stock will no longer be listed on any public market.

8. Allergan’s $2.4-billion acquisition of Zeltiq Aesthetics and $2.9-billion acquisition of LifeCell. Earlier this year, Allergan boosted its medial aesthetics portfolio with the $2.4-billion acquisition o Zeltiq Aesthetics, a Pleasanton, California-headquartered medical technology company that specializes in a proprietary controlled-cooling fat reducing treatment. With the acquisition, Allergan adds Zeltiq’s proprietary CoolSculpting System, a FDA approved non-surgical cooling technology that affects appearance through lipolysis or reduction of unwanted fat. CoolSculpting is marketed in more than 80 countries with entry into additional markets expected in 2017 and 2018.

In another deal closing this year, Allergan completed the acquisition of LifeCell Corporation, the regenerative medicines business of Acelity, a San Antonio, Texas-headquartered wound care and regenerative medicines company, for approximately $2.9 billion in cash. With the acquisition, Allergan gains LifeCell’s portfolio of dermal matrix products, which will be combined with Allergan’s portfolio of medical aesthetic products, breast implants, and tissue expanders. The LifeCell commercial portfolio includes acellular dermal matrices, commonly used in breast reconstruction procedures and complex hernia surgeries. Key products include Alloderm, a human allograft tissue matrix used in breast reconstruction post-masectomy, and Revolve, a single use high-volume fat grafting device used in plastic and reconstructive procedures. Additionally, LifeCell markets Strattice, a porcine-based tissue matrix used in complex abdominal wall repair and for the surgical repair of damaged or ruptured soft tissue. In addition to commercial products, Allergan also acquired LifeCell’s manufacturing capabilities and its research and development operations based in New Jersey.

9. Sawai’s $1-billion acquisition of the generics business of UpsherSmith. In late May 2017, Sawai Pharmaceutical, a Japanese generic pharmaceuticals manufacturer, completed its previously announced acquisition of the generics business of UpsherSmith, a Minneapolis, Minnesota-based privately held company, for $1.05 billion.The acquisition marks an expansion of Sawai’s presence in the US market. The acquisition leverages its intellectual property and R&D capabilities with Upsher-Smith’s manufacturing base, distribution network, commercial relationships, and brand. For Upsher-Smith, the acquisition brings access to Sawai’s manufacturing technology and access to new markets such as Japan. Sawai intends to retain UpsherSmith’s operations in Minnesota and Colorado. Rusty Field, the current president of Upsher-Smith, will take on the additional role of CEO.

10. AMRI to go private. In another deal of a contract services provider going private, in June 2017, Albany Molecular Research Inc. (AMRI), a contract research, development and manufacturing organization, signed a definitive agreement to be acquired by affiliates of The Carlyle Group, an investment firm, and GTCR LLC, a private-equity firm, for $21.75 per share in cash. The agreement was unanimously approved by AMRI’s Board of Directors, which has recommended that the shareholders vote in favor of the transaction. Closing of the transaction is subject to customary closing conditions, including, among others, the affirmative vote in favor of the transaction by holders of a majority of AMRI’s outstanding common stock and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and similar laws outside the US. It is anticipated that the special meeting of AMRI’s stockholders to vote on the transaction will be held in the third quarter of 2017, and, if the transaction is approved, the merger would be expected to close shortly thereafter.

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