KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain moderately strong in pharmaceuticals.
Pharmaceutical deal values are starting to pick up – this quarter added two deal completions above the $10 billion mark. The value of the top 10 completed deals almost doubled from $67.2 billion in HY1 2016 to $124.4 billion in Q1-Q3 2016. M&A activity was spread across several therapy areas. US remains the most active country.
Three pharma players impacted major deal making this quarter: Teva Pharmaceutical Industries Ltd. leads the way in the ongoing consolidation of the generics market, Pfizer Inc. and Allergan PLC enhance their portfolios following the demise of their merger.
In Q3 2016, Teva Pharmaceuticals Industries Ltd. completed its $40.5 billion acquisition of Allergan PLC’s generics business. The deal places Teva at the forefront of the global generics market. Annual cost synergies and tax savings of $1.4 billion are expected by 2019.
As a precondition, the US Federal Trade Commission requires Teva to divest over 75 generic drugs – the largest drug divestiture ordered in a pharmaceutical merger case. With 42 products, Mayne Pharma Group Ltd. acquired the largest portion of the divested products, becoming one of the top 25 retailers and second-largest oral contraceptive provider in the US generic market.
Pfizer moved into a top position in oncology, acquiring the cancer biotech Medivation Inc. for $14 billion. In addition to several promising late-stage oncology assets in its pipe-line, Medivation’s blockbuster cancer drug Xtandi has already been approved by the FDA. Annual sales of $1.3 billion are expected by 2020.
Pfizer also proposed the $1.6 billion acquisition of AstraZeneca PLC’s complementary, primarily non-US late-stage small molecule anti-ineffectives business. This includes new EU-approved Zavicefta, which treats serious Gram-negative bacterial infections. New antibiotics are urgently needed. Increasing antimicrobial resistance causes approximately 250,000 annual deaths in Europe with two-thirds of these estimated to be related to the Gram-negative bacteria.
Pfizer also stated it will not carry out its plan to split its two units, Pfizer Innovative Health and Pfizer Essential Health, into separate publicly traded entities at this time.
Allergan announced the acquisition of Tobira Therapeutics Inc. for $1.7 billion. The deal adds several highly differentiated compounds, for example Cenicriviroc and Evogliptin, to treat non-alcoholic steatophepatitis (NASH) and other liver diseases to Allergan‘s R&D pipeline. To date, there are no approved therapies available for NASH patients.
In addition, Allergan proposed to acquire Vitae Pharmaceuticals Inc. for $0.6 billion, adding first-in-class compounds in atopic dermatitis, psoriasis and autoimmune diseases to its dermatology pipeline. Vitae utilizes its industry-leading Contour structure-based drug design platform for drug discovery and development, for example through computationally simulating how molecules bind to proteins.
Q3 2016 also saw a few collaborations, which are not included in the deal lists but worthy of mention. Celgene Corp. and Jounce Therapeutics Inc. announced an immuno-oncology partnership potentially worth $2.6 billion, aiming to develop a new generation of cancer product candidates.
C.H. Boehringer Sohn AG & Co. KG (BI) announced that it would add new digital technology to its Respimat inhaler by working with Qualcomm Inc., a world leader in next generation wireless technologies. A new fully-integrated prototype inhaler is designed to support adherence to daily treatment regimes.
Following Sanofi and GSK, Takeda Pharmaceutical Company Ltd. announced to develop a Zika vaccine with up to $312 million in funding from US Government. According to The World Health Organization, the Zika virus has so far reached more than 60 countries and territories.
The main pharma indices continue to struggle in 2016. After a peak in August, the S&P500 declined markedly as both US presidential candidates offered plans to cut back on pharma price hikes. Mylan N.V. (-28.9% YTD) was in the middle of the storm after price increases in EpiPen, an emergency treatment of anaphylaxis.
European stocks remain under pressure with Novo Nordisk A/S (-30.0%) and Sanofi (-13.5%) both giving ground. In contrast, Stada Arzneimittel AG (+30.9%) gained strongly throughout the year in response to merger rumours.
In Q3 2016, the European hospital market was impacted by major M&A activity. The hospital market is an important consumer of pharmaceutical products. For example, in 2015, hospitals consumed 13% of pharmaceutical products sold in Germany. Growth in public spending on hospital medicines varies across countries due to differences in policy landscapes and cost containment frameworks.
Fresenius SE & Co. KGaA announced the $6.5 billion acquisition of Spain’s largest private hospital group IDC Salud Holding S.L.U. (Quirónsalud), representing the largest transaction in company history. Fresenius adds 43 hospitals, 39 outpatient centers, around 300 Occupational Risk Prevention centers and, therefore, approximately €2.5 billion sales to its network. Incremental pre-tax cost synergies of €50 million p.a. and significant growth opportunities based on the target’s above-market increase in patient admissions and public-private partnership models are expected.