Review of 2010 and Outlook
Big Pharma started the new decade where it left off in 2009 by continuing to conduct a flurry of deals amongst each other and with many other types of companies throughout the healthcare industry. The rampant pace of deals carried out by large pharma corporations was propelled by continuing efforts to replenish product pipelines, ramp up activity in emerging markets, and diversify business models via growing areas such as biologics and generics. In terms of deals pertaining to therapeutic categories, the leading fields were oncology, infectious diseases, and CNS/neurology.
This special report includes analysis of the total healthcare arena’s top 10 mergers and acquisitions during 2010, provides a comprehensive listing of healthcare companies’ M&A activity throughout the many different industry segments for last year, and details the 2010 deals for the top 20 companies within each of these sectors: Pharmaceutical, Biotechnology, Specialty and Medical Device.
Although 2010 did not match the blockbuster M&A status of 2009 and the total number of pharma/biotech deals were down, the amount of the latter did outpace previous years’ industry activity. Also, the average pharma/biotech deal value of 2010 topped that of 2009. As the world’s leading economies continue to improve since the late-2000s recession, the very-active healthcare M&A trend of the past two years is anticipated to continue during 2011 and beyond.
2009 was highlighted by mega-megers during the first quarter that totaled about $156 billion. The largest M&A transaction of 2009 took place on Jan. 26 when Pfizer Inc. announced the acquisition of Wyeth for $68 billion. On March 9, Merck & Co. and Schering-Plough Corp. agreed to a reverse merger transaction amounting to $41.1 billion. Three days after that announcement, Roche and Genentech Inc. reached a friendly agreement to combine forces for $46.8 billion. The fourth-largest healthcare M&A transaction of 2009 was Abbott Laboratories’ $6.6 billion September acquisition of Solvay SA’s pharmaceuticals business.
The largest healthcare M&A transaction of 2010 was Novartis AG’s acquisition of Alcon Inc. that occurred in two stages. Announced on the fourth day of 2010, Novartis agreed to purchase 52% of Alcon shares at a value of $28.3 billion. Having already acquired 25% of Alcon during July 2008, Novartis as a result had attained 77% majority ownership of the eye-care leader. Then during December 2010, Novartis obtained the remaining minority stake of 23% for $12.9 billion. Through the two transactions that combine for a value of $41.2 billion (and a total of $51.6 billion when including the initial 25% deal in 2008), Novartis becomes the premiere player in the worldwide eye-health arena.
The most active dealmaker of 2010 covered in this special report was sanofi-aventis SA. The Paris-based pharma behemoth lead the second-largest healthcare acquisition of 2010 with its proposed purchase of Genzyme Corp., one of the world’s leading biotech players. The $18.5 billion potential deal has been held up as Genzyme considers the $69 per share offer as too low. However, as this special report went to press, industry insider speculated that a deal would soon be worked out by both sides.
Genzyme would provide sanofi-aventis with a new growth area in the high-margin business of rare diseases. Sanofi-aventis is looking for ways to diversify its business as the company is facing patent losses that will affect about one-third of its 2008 sales base through 2013.
Other leading Big Pharma deal makers during 2010 included the United Kingdom’s GlaxoSmithKline Plc., New York’s Pfizer, New Jersey-based Johnson & Johnson and Merck & Co., and Japan’s Takeda Pharmaceutical Co. and Astellas Pharma Inc.
Pfizer during 2010 was involved in one of the top 10 healthcare M&A pacts for the second straight year. After acquiring the biopharma powerhouse Wyeth in 2009, Pfizer’s largest 2010 deal was for one of the industry’s leading vertically integrated branded pharma companies, King Pharmaceuticals Inc.
Pfizer is the world’s No. 1 drug maker but its best-selling medicine, the cholesterol therapy Lipitor, will face U.S. generic competition by year-end 2011. The addition of King’s product portfolio will assist in offsetting the impending significant sales loss for the world’s top-selling prescription brand ever, Lipitor. King’s abuse-resistant narcotics will expand Pfizer’s share of the $22 billion painkiller market. Pfizer has two megabrands with FDA-approved pain indications, Celebrex (celecoxib) and Lyrica (pregabalin).
Astellas took part in the No. 5 valued M&A transaction of 2010, at a $4 billion price tag. The Tokyo-based drug firm announced its acquisition of the U.S. cancer drug company OSI Pharmaceuticals Inc. in May after launching a ‘hostile takeover’ two months earlier. Astellas reportedly initiated talks with OSI in December 2008, to no avail. Astellas would go on to make a $52-a-share all-cash bid during March 2010, valuing OSI at $3.5 billion. About two months later, OSI agreed to terms after Astellas raised its offer by $500 million to $57.50 per share.
This is not the first time Astellas took the ‘hostile takeover’ approach to attempt to land another company. In January 2009, Japan’s No. 2 drug company in terms of sales went after heart-drug maker CV Therapeutics Inc. via a $16 per share tender offer. Astellas wound up withdrawing its offer after biotech powerhouse Gilead Sciences Inc. successfully made a $20 per share bid for CV, resulting in a March 2009 $1.4 billion acquisition.
Pfizer and sanofi-aventis were not the only companies to make the top 10 M&A deals list in each of 2010 and 2009. Abbott additionally is a member of the list for both years. In September 2009, Abbott inked a deal to acquire Solvay Group’s pharma business for EUR 4.5 billion ($6.6 billion) in cash. The total transaction value could reach EUR 5.2 billion when including other potential payments of up to EUR 300 million if certain milestones are met between 2011 and 2013. The remaining EUR 400 million comes from the assumption of certain liabilities. This deal provided Abbott with a large and complementary portfolio of pharmaceutical products and a significant presence in key emerging markets.
Then in May 2010, Abbott bolstered its presence in India, the second-fastest emerging market, with the acquisition of Piramal Healthcare Ltd.’s Healthcare Solutions business. The $3.72 billion deal for Piramal’s branded generic operations gave U.S.-based Abbott the No. 1 rank in the Indian pharma market.
The Solvay and Piramal transactions (along with restructuring plans) did have a negative affect on Abbott’s full-year 2010 net earnings. The company’s net earnings decreased 19.5% to $4.63 billion from $5.75 billion in 2009. Discounting specified items, Abbott’s net earnings improved 12% to $6.5 billion. Abbott’s consolidated net sales for 2010 rose 14.3% to $35.17 billion. Global pharma sales advanced 20.7% from 2009 to $19.89 billion, with growth aided by the acquisitions of Solvay Pharmaceuticals Inc. and Piramal Healthcare Solutions.
The Abbott/Piramal transaction serves as another example that changing worldwide business models and needing more resources to develop blockbuster drugs are leading Indian companies to team up with multinational corporations via strategic alliances or as targets for acquisitions.
During 2010, emerging markets continued to be a larger regional focus of Big Pharma. The largest concentration of dealmaking in emerging markets is occurring in India, China, Russia, and Brazil. Many of the world’s premiere pharma corporations are seeking to market new medicines in emerging regions where patent protection exists and generic drugs have less of a market presence. Emerging markets are expected to grow by up to 17% between 2010 and 2014 versus up to 6% in developed markets during the same time frame.
Top Healthcare M&A deals of 2010
1. Novartis AG and Alcon Inc.
Product diversification mainly via inorganic opportunities remains a very significant growth strategy in the pharma world, as is the case with this transaction. Novartis in August 2010 completed its acquisition of 52% additional Alcon shares owned by Nestlé SA for $28.3 billion. This purchase resulted in 77% ownership of Alcon for Novartis. The 52% deal was officially announced on Jan. 4, 2010.
Novartis and Nestlé first entered into the 77% majority-stake deal during April 2008 as part of a two-phase process. The total cost to Novartis for the 77% majority stake of Alcon was $38.7 billion, or $168 per share. During July 2008 and as the first phase, Novartis acquired a 25% stake in Alcon for $10.4 billion. The $168 per share reflects a 17% premium over $143.18, which was agreed by Novartis and Nestlé to be Alcon’s market price during April 2008.
The $38.7 billion price tag included certain adjustments for dividends and interest until closing. The deal for 77% ownership, including the original 25% stake purchased during mid-2008, was funded with $17 billion of available cash and $13.5 billion from bonds raised during March 2010 as well as in 2008 and 2009. The remaining $8.2 billion was financed with U.S. commercial paper issued during 2010.
Then on Dec. 15, 2010, a definitive agreement was struck to merge Alcon into Novartis for $12.9 billion. The merger consideration includes up to 2.8 Novartis shares and a Contingent Value Amount (CVA) to be settled in cash that will in aggregate equal $168. If the value of 2.8 Novartis shares exceeds $168, the amount of the Swiss pharma company’s shares will be reduced accordingly.
As a result, Alcon will become an eye-care division of Novartis in a fast-growing sector. The new division is headed by Kevin Buehler, who was president and CEO of Alcon.
“The full merger is the logical conclusion of our initial strategic investment in Alcon,” stated Daniel Vasella, M.D., Novartis chairman. “With this step Novartis takes full ownership, becoming the global leader in eye care, a rapidly expanding, innovative platform based on the growing needs of an aging population.”
According to Joseph Jimenez, CEO of Novartis, “The growth synergies here are significant, as Alcon will be the eye-care development engine for our best-in-class research organization, and will leverage the Novartis market-access capabilities outside the U.S. I am very pleased that we were able to come to this agreement and will be able to provide Alcon employees the full benefits of being part of the Novartis Group.”
Full ownership of Alcon enables Novartis to establish a fifth growth platform as part of its healthcare portfolio. The Novartis group already consists of these business divisions: Pharmaceuticals, Vaccines and Diagnostics, Sandoz/generics, and Consumer Health. Concentrated purely on healthcare, Novartis’ diverse product portfolio includes innovative medicines, cost-saving generic pharmaceuticals, preventive vaccines, diagnostic tools and consumer-health products. Novartis is the only company with top markets positions in these fields.
For 2009, Novartis generated net sales of $44.3 billion and invested $7.5 billion in R&D. For the first nine months of 2010, the group reported net sales of $36.43 billion, up 16% year over year. With headquarters located in Basel, Switzerland, Novartis has about 100,000 full-time-equivalent associates and operates in 140-plus countries.
Based in Hunenberg, Switzerland, Alcon is the largest and most profitable eye-care company with more than 15,500 employees in 75 countries. For 2009, the company had sales of $6.5 billion, operating income of $2.3 billion, and net income of $2 billion. Alcon’s product range includes pharmaceutical, surgical and consumer eye-care products to treat diseases, disorders and other conditions of the eye.
Alcon is the worldwide leader in IOLs based on the AcrySof family, which exceeded $1 billion in 2008 sales. Alcon’s portfolio of specialty medicines covers various eye diseases such as glaucoma and conditions in the front of the eye like infections and allergies. Alcon also provides a portfolio of contact-lens-care products, OTC dry-eye drops and ocular vitamins. Emerging markets has been a key growth driver for the company.
According to Novartis, the eye-care industry offers additional growth opportunities underpinned by the increasing unmet needs of emerging markets and an aging population. The Alcon and Novartis eye-care portfolios address a wide array of these unmet needs. The companies have complementary pharma portfolios for diseases in the front and back areas of the eye as well as strong lens-care brands around the globe. Alcon is a worldwide leader in ophthalmic surgical products. Novartis possesses a broad contact lens portfolio and advanced eye-care technologies as well as an early-stage pipeline of innovative ophthalmic medicines.
Novartis does offer a line of complementary medicines used to treat various eye diseases not addressed by Alcon’s portfolio. Novartis’ extensive R&D pipeline contains projects targeting novel ways to treat various forms of eye-related diseases. Lucentis, a therapy for “wet” age-related macular degeneration that is a leading cause of blindness in people older than 55 years, will not be transferred to the new eye-care division. Instead, the drug will be jointly promoted.
Alcon and Novartis have attractive worldwide eye-care activities, each offering their own competitive positions in highly complementary segments that combined cover more than 70% of the global vision-care market. Aligning these strengths will create an offering of even more compelling products for patients around the globe. According to Novartis, the new eye-care division will have enhanced opportunities to accelerate expansion in high-growth regions, generate greater value from combined product portfolios and capitalize on strengthened R&D capabilities.
“This merger will create a stronger eye-care business with broader commercial reach and enhanced capabilities to develop innovative eye-care products that fulfill unmet clinical needs in eye care,” Mr. Buehler said. “The combination of Alcon’s deep understanding of the eye-care specialty and the broad expertise and scale of Novartis will address virtually all key areas of eye care and position the Alcon business unit for faster growth.”
The merger is anticipated to be finalized during first-half 2011. Implementation is expected to take six months from the closing of the merger. Following the completed merger, Alcon will be the new eye-care division of Novartis. Pro-forma sales of the new division for 2009 totaled $8.7 billion. The business will include CIBA Vision and ophthalmic medicines.
A worldwide leader that generates more than three-fourths of its yearly sales from contact lenses, CIBA Vision has been growing due in part to new product introductions in the Air Optix family of monthly silicone hydrogel lenses and the Dailies range of disposable lenses. CIBA Vision additionally offers an array of lens-care products.
Yearly cost synergies to Novartis following the completion of full ownership of Alcon are expected to be $300 million. This amount includes $200 million in synergies achievable from 77% ownership.
The 100% acquisition of Alcon at $168 per share is expected to result in another $130 million revaluation gain from fair valuing the initial 25% interest at the time of change of majority ownership. The total revaluation gain is projected to be $330 million and will be reported under income from associated companies. One-time expenses in 2010 are expected to consist of $470 million inventory revaluation and $100 million transaction costs. There are no other one-time costs for the merger to be charged to the consolidated income statement, since these costs of $80 million will be deducted from Novartis Group’s equity. According to Novartis, the one-time costs associated with the realization of the synergy target will be evaluated as part of the integration planning.
Alcon minority shareholders initially rejected Novartis’ previous offers before the December 2010 agreement. Alcon reportedly claimed that the company would have been paid less per share than by main shareholder Nestlé. Founded during 1866, Nestlé is regarded as the “world’s leading Nutrition, Health and Wellness company.” For the first nine months of 2010, Nestlé sales reached SFr82.8 billion, consisting of 6.1% organic growth, including 4.5% real internal growth. Pharma sales totaled SFr5.8 billion (10.6% organic growth, 8.9% real internal growth), including Alcon until near the end of August.
Novartis now is the clear-cut leading force in the eye-care segment. Bausch & Lomb Inc. is regarded as the No. 2 player in the worldwide eye-health market. Bausch & Lomb is committed to bringing visionary ideas to eye health. The corporation’s core businesses include contact lenses and lens-care products, ophthalmic surgical devices and instruments, as well as ophthalmic pharmaceuticals. Founded during 1853, Bausch & Lomb is based in Rochester, N.Y., and has 10,000-plus employees. The company’s products are sold in more than 100 countries.
Unlike many other prime-time deals throughout the decades, the 2010 transactions between Novartis and Alcon were expected by many industry folks to eventually transpire since Novartis had retained the option to acquire Nestlé’s entire stake in Alcon as part of the 2008 agreement. And this strategic maneuver into the eye-care market will help Novartis grow in a dynamic segment that is positioned to become increasingly profitable due to an aging population in many Western countries. With the company’s top-selling medicines Diovan (valsartan) and Gleevec/ Glivec (imatinib) set to lose patent protection during 2012 and 2015, Novartis is diversifying its growth sources to potentially minimize risk.
Alcon was not Novartis’ only company acquisition during 2010. On June 1, the Sandoz division completed the acquisition of the privately held U.S. pharma company Oriel Therapeutics Inc. Oriel has concentrated on developing respiratory products with known pathways as generic alternatives to patented drugs for asthma and chronic obstructive pulmonary disease (COPD). Oriel is being integrated as a separate development unit within Sandoz. Deal terms were undisclosed.
Through Oriel, Sandoz gained rights to several promising development projects for asthma and COPD. Also, Sandoz acquired rights to the novel FreePath drug-delivery system and Solis multi-dose dry-powder inhaler. The FreePath drug-delivery technology has the potential to address some of the hurdles facing FDA regulatory clearance of generic inhaled medicines. Oriel developed the proprietary Solis disposable dry-powder inhaler based on FreePath.
According to Novartis, obtaining regulatory approvals for Oriel’s products in development would increase access to affordable, high-quality respiratory medicines and further reinforce Sandoz’s position as a leader in differentiated generics. Additionally, the asthma and COPD market segment is projected to grow much quicker than the pharma market, driven by various factors such as a significant level of under-diagnosis. The completion of the EBEWE Pharma acquisition during 2010 (a deal originally announced in May 2009) has additionally set up Sandoz with a leading role in the rapidly growing market for generic oncology injectables.
“Oriel is a strong strategic fit with Sandoz and the acquisition is expected to support our strategy of increasing the number of differentiated, higher-value products in our development pipeline,” stated Jeff George, Division Head of Sandoz. “One of our strategic objectives is to offer fully substitutable generic versions of key branded medicines, including respiratory medicines. This is a key area of focus that complements our global leadership position in biosimilars and complex injectables.”
Sandoz is a worldwide leader in generic pharmaceuticals. Sandoz offers a broad range of high-quality, affordable products that are no longer patent protected. The Novartis group division has a portfolio of 1,000 compounds and sells products in 130-plus countries. Key product groups for Sandoz include antibiotics, treatments for CNS disorders, gastrointestinal medicines, cardiovascular treatments and hormone therapies. The company develops, produces and markets these medicines along with pharma and biotech active substances and anti-infectives.
In addition to strong organic growth during recent years, Sandoz has made a series of acquisitions such as Lek (Slovenia), Sabex (Canada), Hexal (Germany), Eon Labs (United States), and EBEWE Pharma (Austria). During 2009, Sandoz had 23,000 employees and generated sales of $7.5 billion.
Sandoz is the only generic company with three marketed biosimilar products providing invaluable insight into the successful exploitation of this major strategic opportunity: Zarzio for treating low white blood cell count associated with chemotherapy treatment or advanced HIV infection; Omnitrope for treating children and adults with growth hormone deficiency; and Binocrit, a life-saving anemia medicine for patients suffering from kidney failure or undergoing chemotherapy.
2. sanofi-aventis SA and Genzyme Corp.
As this special report went to press, one of the largest global pharma companies had been trying since the summer of 2010 to acquire one the leading biotech companies worldwide. First announced by sanofi-aventis on Aug. 29, 2010, the company submitted a non-binding proposal to acquire Genzyme in an all-cash deal valued at $18.5 billion.
Under the proposed acquisition’s terms, Genzyme shareholders would receive $69 per their company’s share in cash, representing a 38% premium over its unaffected share price of $49.86 as of July 1, 2010. Sanofi-aventis’ initial offer represented a premium of almost 31% over the one-month historical average share price through July 22, 2010, the day before press speculation that sanofi-aventis had made an approach to acquire Genzyme. Based on analyst consensus estimates, the offer represented a multiple of 36 times Genzyme’s 2010 earnings per share and 20 times its 2011 EPS. According to sanofi-aventis, the offer price reflected the upside potential of the anticipated recovery in Genzyme’s performance for 2011. Sanofi-aventis had secured financing for this offer.
The non-binding offer, which was made on July 29, 2010, was reiterated in a letter issued Aug. 29 to Genzyme’s Chairman, President and CEO Henri A. Termeer after several unsuccessful attempts to engage Genzyme’s management in discussions, according to sanofi-aventis. Sanofi-aventis in its Aug. 29 press release disclosed the contents of its letter to “inform Genzyme’s shareholders of the significant shareholder value and compelling strategic fit inherent in a combination of the two companies.”
As a leading global pharma company, sanofi-aventis discovers, develops and distributes therapeutic solutions to improve the lives of everyone. According to PharmaLive.com data, in terms of healthcare revenue sanofi-aventis was the No. 6 pharma company in 2009 at $40.84 billion. For the first nine months of 2010, sanofi-aventis net sales came in at EUR 22.99 billion, representing a 4.8% increase year over year.
Genzyme is a leading biopharma company based in Cambridge, Mass. The corporation’s products address rare diseases, kidney disease, orthopedics, cancer, transplant and immune diseases, and diagnostic testing. Based on 2009 revenue of $4.52 billion, Genzyme ranked No. 4 among the world’s biotech companies in a PharmaLive.com report. For 2010, Genzyme reported that revenue was $4.05 billion versus a restated 2009 figure of $3.98 billion. Since 1981, Genzyme has evolved from a small start-up to a diversified enterprise with 12,000-plus employees worldwide.
According to sanofi-aventis, its worldwide reach and significant resources would enable Genzyme to accelerate investment in new treatments, enhance penetration in existing markets, and further expand into emerging markets. The combination of the two entities would create a worldwide leader in developing and providing novel treatments, providing each with significant new growth opportunities.
“A combination with Genzyme represents a compelling opportunity for both companies and our respective shareholders and is consistent with our sustainable growth strategy,” stated Christopher A. Viehbacher, CEO of sanofi-aventis, in the company’s Aug. 29 press release. “Sanofi-aventis shares Genzyme’s commitment to improving the lives of patients, and our global reach and resources can help the company better navigate the issues it faces today. The all-cash offer provides immediate and certain value for Genzyme shareholders at a substantial premium that recognizes the company’s upside potential, while sanofi-aventis shareholders would benefit from the accretion and the attractive growth prospects of this combination. Now is the right time for Genzyme to consider a transaction that maximizes value for its shareholders. Sanofi-aventis believes strongly in this acquisition and its strategic and financial benefits. We remain focused on entering into constructive discussions with Genzyme in order to complete this transaction.”
On Oct. 4, sanofi-aventis commenced a tender offer for all outstanding shares of Genzyme common stock for $69 per share. The offer was set to expire at 11:59 p.m. EST on Dec. 10, 2010. On Oct. 4, sanofi-aventis filed with the U.S. Securities and Exchange Commission a Tender Offer Statement on Schedule TO, containing the Offer to Purchase, form of Letter of Transmittal and related tender offer documents, setting forth in detail the terms and conditions of the tender offer.
According to sanofi-aventis’ Oct. 4 press release, although the company’s “strong preference is to engage in constructive discussions with Genzyme, Genzyme’s Board and management team’s continued refusal to do so has led sanofi-aventis to commence the tender offer. A meeting between the two CEOs on Sept. 20, 2010, proved unproductive, despite several attempts by sanofi-aventis to advance discussions. Sanofi-aventis executives met recently with shareholders who collectively own more than 50% of Genzyme’s outstanding shares. The conversations revealed that those shareholders were frustrated with Genzyme’s persistent refusal to have meaningful discussions regarding sanofi-aventis’ proposal. Sanofi-aventis sent a letter to Genzyme’s Board today informing it of the company’s intention to commence the tender offer, a copy of which is included with this release.”
According to Mr. Viehbacher in that same press release, “Sanofi-aventis is committed to a transaction with Genzyme, and we believe that our offer reflects both Genzyme’s upside potential and its current operational challenges. Our strong preference has been and continues to be to work together constructively with the Genzyme Board to reach a mutually agreeable transaction, but our attempts to do so have been blocked at every turn. Our recent meetings with Genzyme shareholders demonstrate that they support a transaction and are frustrated by Genzyme’s unwillingness to engage in constructive discussions with us. This has left us with no choice but to present the offer directly to Genzyme’s shareholders. We strongly believe our offer price of $69 per share in cash represents a compelling value for Genzyme shareholders.”
Genzyme also issued a press release on Oct. 4 urging shareholders not to take action on the “unsolicited tender offer from sanofi-aventis to acquire all outstanding common shares of Genzyme for $69 per share. Genzyme’s board will review the offer, together with its independent financial and legal advisors, and will advise shareholders of its formal position within 10 business days by filing with the Securities and Exchange Commission a solicitation/recommendation statement on Schedule 14D-9.”
Three days later, Genzyme announced that the company’s board of directors voted unanimously to reject the $69 per share tender offer. The board recommended that Genzyme shareholders not tender their shares to sanofi-aventis pursuant to the offer. According to the press release, the board considered these factors and others when making its recommendation:
- “The offer is based on identical financial terms to two previous unsolicited proposals submitted by sanofi-aventis, both of which were rejected by the board. The board remains unanimously resolute in its belief that the offer price of $69.00 per share is inadequate and opportunistic, substantially undervalues the company, fails to recognize the company’s plan to increase shareholder value, and is not in the best interests of Genzyme or its shareholders.
- “The offer fails to compensate shareholders for the value of Genzyme’s existing business, which delivered compound annual revenue growth of 23% from 2002-2009. This business includes a unique and longstanding leadership position in the orphan-drug market; 12 market-leading products with durable revenue streams; and a long history of research and development productivity and success.
- “The offer fails to recognize the value-creation impact of the company’s five-point plan. Under this plan, Genzyme is focusing on its core business and working to establish operational excellence in manufacturing; capitalizing on near-term growth drivers; divesting non-core businesses; reducing operating costs and improving margins; and optimizing its capital structure. Genzyme has made significant progress in implementing this plan, and the board believes that – given the opportunity to fully execute the plan – the company has the potential to generate substantially more value for shareholders than the offer price. The company also has an opportunity to further deploy its substantial prospective free cash flow to maximize value for shareholders.
- “The offer fails to reflect Genzyme’s valuable late-stage pipeline, which includes three breakthrough products that are expected to be launched by the end of 2013. Foremost among these products is alemtuzumab, a potentially transformative therapy for multiple sclerosis. Phase III clinical trial results for this drug will be available in the middle of next year . Based on the robust clinical results reported to date from the Phase II study, and the possibility for once-yearly dosing, alemtuzumab has the potential to capture a material share of a global MS market that is projected to reach $14 billion when the product is first launched in 2012, offering an exciting revenue opportunity that will result in significant value for shareholders.
- “The offer price does not adequately compensate Genzyme’s shareholders for the strategic importance and financial benefit to sanofi-aventis of a potential transaction with Genzyme.”
On Oct. 20, the waiting period under the Hart-Scott Rodino (HSR) Antitrust Improvements Act of 1976 applicable to sanofi-aventis’ proposed acquisition of Genzyme expired. The expiration of the HSR waiting period is a requisite step in satisfaction of the condition to the tender offer regarding antitrust approvals.
On Nov. 8, sanofi-aventis announced that the company had sent a letter to Genzyme requesting that it clarify its position on various potential Board actions raised in Genzyme’s Schedule 14D-9. The letter additionally noted that sanofi-aventis was encouraged by Genzyme’s decision to “probe and evaluate alternatives” including contacting third parties, but added that sanofi-aventis had not been contacted by Genzyme or its advisors.
Genzyme responded that same day with a letter to sanofi-aventis reiterating the unanimous view of its board of directors “that the $69-per-share offer price is not an appropriate starting point for discussions because it dramatically undervalues the company.”
On Dec. 13, sanofi-aventis announced that it had extended the company’s tender offer for all of Genzyme’s outstanding shares of common stock at $69 per share, net to the seller in cash, without interest and less any required withholding taxes. To provide more time to allow holders of Genzyme common stock to tender their shares, the tender was rescheduled to expire at 11:59 p.m., EST, on Jan. 21, 2011, unless further extended. The depositary for the tender offer had advised sanofi-aventis that, as of Dec. 10, 2010, 2,211,989 shares of Genzyme common stock (including shares subject to guarantees of delivery, but not including the 100 shares owned by sanofi-aventis) were tendered and not withdrawn, representing 0.9% of the outstanding shares on a fully diluted basis.
Genzyme responded with its own Dec. 13 press release reiterating the unanimous recommendation of the company’s board of directors that shareholders continued to reject the sanofi-aventis $69-per-share tender offer. “The results of the tender offer reported today demonstrate that our shareholders strongly support the view of the board that the Sanofi offer substantially undervalues Genzyme,” Mr. Termeer stated.
On Jan. 9, 2011, sanofi-aventis announced the following statement: “Our financial advisors have been engaged in discussions with respect to a potential Contingent Value Right (CVR), for Lemtrada with milestone payments based upon approval and certain sales thresholds. Those discussions are continuing and now include representatives from both companies. There remain significant differences on the terms and conditions of the potential CVR and the value of our offer, and there is no guarantee that the parties will come to an agreement.”
Lemtrada (alemtuzumab) is being developed in Phase III studies for the treatment of multiple sclerosis. The monoclonal antibody alemtuzumab is already available in global markets under the brand names Campath and MabCampath for various indications.
Positive news for sanofi-aventis was announced by Genzyme on Jan. 10. According to a Genzyme press release, discussions between its financial advisors and those for sanofi-aventis were continuing and had expanded to include reps from each company. “These discussions have focused on potential terms for a negotiated transaction and have included the possible use of a contingent value right relating to alemtuzumab as part of any potential resolution of differences with respect to value. Genzyme can provide no assurance that these discussions will continue or will result in a transaction. It also can provide no assurance of the terms that may be obtained in any such transaction.”
On Jan. 12, 2011, sanofi-aventis announced that the European Commission had cleared for approval the proposed Genzyme acquisition.
Sanofi-aventis extended its tender offer at $69 per share to 11:59 p.m. EST on Feb. 15, 2011, unless additionally extended. This tender-offer extension was announced on Jan. 24. The depositary for the tender offer informed sanofi-aventis that as of Jan. 21, 2011, there were 1,091,618 shares of Genzyme common stock (including shares subject to guarantees of delivery, but not including the 100 shares owned by sanofi-aventis) tendered and not withdrawn. This represented 0.40% of the outstanding shares on a fully diluted basis.
According to industry reports, Genzyme believes that a bid of between $84 and $89 per share represents a fair valuation of the corporation’s business. However, industry insiders project sanofi-aventis will increase the offer to a ballpark figure of about $80 per share.
As the discussions with Genzyme continued on as this special report went to press, sanofi-aventis did have more success with other company acquisitions during 2010. Acquisitions included the Chinese consumer healthcare company BMP Sunstone Corp. as well as U.S. biotech players VaxDesign and TargeGen Inc.
On Oct. 28, 2010, a deal was struck in which Sanofi Pasteur, the vaccines division of sanofi-aventis, is to acquire all outstanding shares of BMP Sunstone for cash consideration of $10 per share, or a total of $520.6 million on a fully diluted basis. The acquisition is to be structured as a merger of BMP Sunstone, which as a result becomes a wholly owned subsidiary of sanofi-aventis.
The price per share represents a 30% premium above the closing price of BMP Sunstone’s shares as of Oct. 27, 2010. BMP’s board of directors unanimously approved the deal.
BMP generated sales of $147 million during 2009. Almost 60% of those sales derived from the consumer healthcare segment, where BMP has access to retailers, county hospitals and community clinics in Tier III and Tier IV markets. In this area, BMP has established two of China’s most recognized brands: “Hao Wa Wa” (GoodBaby), which has been recognized as the No. 1 pediatric Cough & Cold brand in China, and “Kang Fu Te” (Confort), a hygiene brand for women’s healthcare.
Following the October 2010 establishment of the joint-venture Hangzhou Sanofi Minsheng Consumer Healthcare Co. Ltd., the acquisition of BMP gives sanofi-aventis a leading consumer healthcare presence in China with a strong position in Vitamins & Minerals Supplements and Cough & Cold. These are the two largest categories of that market.
“The acquisition of BMP Sunstone will not only leverage our consumer healthcare business in China, but will also bring us unique access to new expanding distribution channels which are expected to account for a third of the pharmaceutical market in China in the coming years” Mr. Viehbacher stated. “This transaction represents another strategic move for sanofi-aventis to reinforce its leadership position in China.”
According to David (Xiao Ying) Gao, CEO of BMP, “This transaction offers immediate and significant value for BMP Sunstone stockholders and important benefits to our employees and customers. I am excited to work with the sanofi-aventis team to capture the significant growth opportunities this new combination will create in the consumer healthcare market in China.”
Consumer healthcare is one of the core growth platforms pinpointed in sanofi-aventis’ strategy for attaining sustainable growth. As of October 2010, Sanofi-aventis was the No. 5 consumer healthcare company worldwide, and continues to expand its presence in this field via organic and external growth.
With an estimated size of EUR 12 billion in 2010, the consumer healthcare market in China represents the second largest worldwide after No. 1 United States. China’s consumer healthcare market has grown at a CAGR of 11% since 2005. This trend is expected to continue during the coming years, spurred by continued urbanization and improvement of patients’ affordability, a rising trend of self-medication, and the development of pharmacy chains and expanded retail offerings of consumer healthcare products.
Sanofi-aventis was the first foreign pharma company to debut offices in China. Sanofi-aventis has become one of the fastest-growing healthcare companies in that vast country, with 5,000 people in 200-plus cities across China. From prevention to treatment, sanofi-aventis is uniquely set up to take on public-health needs in China. Sanofi Pasteur is a leading vaccines player in China.
Sanofi-aventis as of October 2010 had three manufacturing facilities in China: in Beijing, Hangzhou, and Shenzhen. Sanofi-aventis is constructing three new facilities, each set to start commercial production in 2012, to meet the growing demand of the Chinese market. The company is engaged in integrated R&D in China from drug target identification to late-stage clinical development. Sanofi-aventis’ China R&D Center and Asia Pacific R&D Center are located in Shanghai.
During September 2010, Sanofi Pasteur also inked a binding deal to acquire VaxDesign. A privately held U.S. biotech company located in Orlando, Florida, VaxDesign develops, manufactures and markets in vitro models of the human immune system.
The company developed the Modular IMmune In-vitro Construct (MIMIC) technology that melds immunology with engineering to find solutions to complex biological problems. The system was built to capture genetic and environmental diversity. Based on data generated in a surrogate human immune system, the system provides earlier selection of the optimal product candidate as opposed to using animal models before studies in human clinical trials. According to sanofi-aventis, MIMIC will be relevant in the assessment of the value of Sanofi Pasteur’s vaccine candidates, providing a key “filter” in the preclinical stage for a “go/no go” decision-making process before Phase I human testing.
The MIMIC system was originally developed for the Rapid Vaccine Assessment Program of the U.S. Defense Advanced Research Projects Agency (DARPA) and has since been funded by several other U.S. federal agencies. These agencies include the Defense Threat Reduction Agency, Biomedical Advanced Research and Development Authority, Army Chemical Biological Medical Systems (CBMS), and National Institute of Standards and Technology (NIST).
“MIMIC is the most-advanced platform in the field,” according to Michel DeWilde, Ph.D., senior VP of R&D for Sanofi Pasteur. “With this novel model for understanding mechanisms of action, the probability of clinical success increases and the time to market should decrease. MIMIC successfully reproduced our own clinical data and is adaptable for the evaluation of multiple diseases and corresponding patient populations. This platform will provide a significant competitive advantage in the development of vaccines.”
Sanofi Pasteur was to make an up-front payment of $55 million upon closing of the acquisition of VaxDesign and another $5 million upon realization of a certain development step. The transaction was expected to close by year-end 2010.
“We are excited and appreciative to be part of the Sanofi Pasteur legacy of innovation,” stated VaxDesign President and CEO William Warren, Ph.D. “The acquisition enables us to leave an imprint on public health through concrete applications of the immune system in a test tube.”
San Diego-based TargeGen is a privately held biopharma company. TargeGen has been developing small-molecule kinase inhibitors for treating leukemia, lymphoma, and other hematological malignancies and blood disorders.
At the end of June 2010, sanofi-aventis agreed to acquire TargeGen. Sanofi-aventis made an up-front payment of $75 million upon closing of the accord. Further milestones payments will take place at different stages of development for TargeGen’s lead product TG 101348. The total amount of all payments, including the up-front one, could reach $560 million. The closing of the transaction was slated for third-quarter 2010.
TG 101348 is a potent inhibitor of Janus kinase 2 (JAK-2). The oral agent is being developed for treating patients with myeloproliferative diseases such as myelofibrosis. MF is a chronic and progressive disorder in which there is a proliferation of certain cells of the bone marrow, leading to bone-marrow fibrosis, and is associated with activating mutations of JAK-2.
TG 101348 has completed a multicenter clinical Phase I/II study in patients with myelofibrosis. Other clinical studies were planned to begin during second-half 2010.
Besides MF, TG 101348 could be effective in other hematological malignancies like Polycythemia Vera. PV is a blood disorder in which the bone marrow produces too many red blood cells. There are no approved or adequately effective therapies to treat these diseases, known as myeloproliferative neoplasms. They affect an estimated 400,000 people in the United States and in Europe.
In addition to TG 101348, TargeGen had other tyrosine kinases in preclinical development.
“Sanofi-aventis brings many strengths to the continued development and potential commercialization of TG101348”, stated Peter G. Ulrich, president, CEO and co-founder of TargeGen. “With their global focus on oncology and long-term commitment to this patient population, we are confident they will maximize the potential of TG101348 across multiple clinical indications.”
According to Marc Cluzel, M.D., Ph.D, executive VP of R&D at sanofi-aventis, “The acquisition of TargeGen represents a further significant step to increase our engagement in the field of hematological malignancies. In addition, this acquisition is another example of our strong commitment to oncology to provide patients, physicians and public-health stakeholders with breakthrough medicines addressing unmet medical needs.”
3. Merck KGaA and Millipore Corp.
A worldwide pharma and chemical company, Merck KGaA completed the acquisition of Millipore on July 15, 2010. Millipore has been a leading life-sciences company based in Billerica, Mass. The aggregate purchase price included debt and cash of EUR 5.2 billion ($7 billion).
Merck KGaA agreed to the acquisition on Feb. 28, 2010, for $107 in cash per share of Millipore common stock. The closing followed the approval of the acquisition by Millipore’s shareholders at a special meeting that took place June 3, 2010.
This deal creates a EUR 2.1 billion ($2.9 billion) world-class partner for the life-sciences sector. Merck Chemicals head Bernd Reckmann, a member of the executive board of Merck KGaA, is in charge of Merck Millipore. Merck Chemicals now consists of two new divisions: Merck Millipore and Performance Materials. However, this business combination offers integrated solutions beyond chemicals. Merck Millipore now contains three business units – Bioscience, Lab Solutions and Process Solutions. All units comprise a number of key concentration areas, known as business fields to Merck KGaA.
“With today’s launch of Merck Millipore, we are creating a world-class partner for the life-science sector with a comprehensive product offering and enhanced global scale and innovative power,” stated Dr. Karl-Ludwig Kley, chairman of the Merck executive board. “We will now move quickly to bring together the expertise and complementary capabilities of both Merck and Millipore employees to capture the significant opportunities in the high-growth, high-margin market segments such as bio-research and bio-production.”
According to Dr. Reckmann, “Both Merck Chemicals and Millipore have a long and proud history of providing superior products and solutions to their partners in the life-science sector. The increased breadth of the Merck Millipore product portfolio, together with the expertise of our talented people, will allow us to deepen our customer relationships and gain the new insights we need to further drive innovation. We will also bring together our research and development capabilities, which will make Merck Millipore one of the top three investors in R&D in the Life Science Tools industry. This, in turn, will enable us to create greater value for our customers.”
The acquisition is fully in line with Merck KGaA’s strategy of concentrating on high-margin, specialty products with an attractive growth profile. Also, the deal results in a more balanced business profile for the Merck Group. Before the acquisition, the Chemicals business sector generated about 25% of Merck KGaA’s total revenue. Following the deal, the chemicals business is contributing about 35% of total Group revenue, spurred by its strong Liquid Crystals business and the new world-class life-science business.
The Merck Group had revenue of about EUR 7.7 billion in 2009, with 33,000 employees in 61 countries. For the first nine months of 2010, Darmstadt, Germany-based Merck Group generated sales of EUR 6.47 billion versus EUR 5.45 billion during January-September 2009. The lead business is the pharma group Merck Serono SA with sales of EUR 3.99 billion during the first three quarters of 2010 (EUR 3.7 billion during January-September 2009).
The group’s history dates back to 1668. The operating activities come under the umbrella of Merck KGaA, in which the Merck family holds a 70% interest and free shareholders own the other 30%. During 1917, the U.S. subsidiary Merck & Co. was expropriated and has been an independent company since then.
Millipore has been a life-sciences leader providing cutting-edge technologies, tools, and services for bioscience research and biopharma manufacturing. About 90% of the company’s sales were consumables As a strategic partner, Millipore has collaborated with customers to take on the world’s challenging human health issues. From R&D to production, the company’s scientific expertise and innovative solutions have aided customers in addressing their most complex problems and attaining their goals. Millipore was an S&P 500 company with 6,000-plus employees globally.
As of July 2010, Merck Millipore had 10,000 employees in 64 countries, Merck Millipore (known as EMD Millipore in the United States and Canada) had pro-forma revenue of EUR 2.1 billion ($2.9 billion) during fiscal 2009. With headquarters in Billerica, the division is supported by locations throughout the Americas, Europe and Asia-Pacific.
Merck Millipore offers a comprehensive array of products, technologies and services for pharma and biotech companies as well as for academia to improve lab productivity and develop and optimize manufacturing processes. The division has enhanced worldwide manufacturing and distribution capabilities, enabling it to compete more effectively in the marketplace. Also, according to Merck KGaA, a larger sales organization will result in greater customer service and broader worldwide sales coverage, thus opening up new growth opportunities.
Merck Millipore leadership was drawn from both companies in addition to Dr. Reckmann. Jon DiVincenzo, who was president of Millipore’s Bioscience division, became head of Merck Millipore’s Bioscience business unit. Klaus R. Bischoff, who had been serving as president of Merck’s Performance & Life Science Chemicals division, took over the Lab Solutions business unit. Jean-Paul Mangeolle, president of Millipore’s Bioprocess division, became the new head of the Process Solutions business unit. Peter C. Kershaw, who was corporate VP of global operations at Millipore, was tapped as head of operations.
Merck KGaA expected that the majority of the integration decisions would be made by year-end 2010. The combined business is expected to generate yearly cost synergies of about $100 million, which Merck KGaA expects to realize within three years from the closing of the deal.
The second Merck Chemicals division, Performance Materials, is steered by Walter Galinat, who had been head of the Liquid Crystals division. This division consists of Merck’s Materials businesses and activities, such as the Liquid Crystals, Pigments and Cosmetics businesses.
Performance Materials joins together Merck KGaA’s successful line of materials-based products, technologies and innovative solutions as well as its application know-how and customer-centric research to create an even more compelling customer offering and open up more growth opportunities. The division is better able to effectively address current and future megatrends via R&D concentrated on future demand drivers and an extensive portfolio of innovative solutions and common customer engagement.
“The integration of our specialty chemicals materials businesses in Performance Materials allows Merck to merge innovative chemical research and development, strong application know-how, excellent product solutions and distinctive customer focus in promising growth areas,” Mr. Galinat stated. The division had pro-forma sales exceeding EUR 1 billion ($1.6 billion) in fiscal 2009, with 5,000 employees around the globe.
Some industry analysts favored the acquisition of Millipore because the move helps diversify Merck KGaA while competitors were cutting into the German company’s market share.
4. Teva Pharmaceutical Industries Ltd. and ratiopharm
The world’s top generic company Teva completed the acquisition of Germany’s second largest generics producer ratiopharm in August 2010. With ratiopharm, Teva is the No. 1 generic company in Europe, has the leading market position in 10 countries, and ranks in the top three in seven others. This deal, which initially was announced on March 18, also significantly elevates Teva’s sales in Canada.
“This is an exciting day for Teva and ratiopharm,” said Shlomo Yanai, Teva president and CEO, on Aug. 10, 2010. “Teva, the world’s leading generic pharmaceutical company, will now become the No. 1 generics company in Europe as well. Increasing Teva’s market share in Europe – a geography with tremendous potential for generics penetration – is an important pillar of our long-term growth strategy. With the acquisition of ratiopharm we will become the leader in key European markets and we are well-positioned to become the leader in many other European markets in the near future.
“We have great respect for ratiopharm’s tradition of leadership, and their dedication to excellence and quality. We are thrilled to welcome ratiopharm’s outstanding team into the Teva family, and we are confident that the combined experience of the Teva and ratiopharm teams will ensure a quick, smooth, and successful integration process. Together we will continue to make affordable, high-quality medicine accessible to more and more patients across Europe.”
The ratiopharm deal was structured as a ‘locked box’ transaction. Teva paid 3.625 billion euros for the ratiopharm shares, which reflected the agreed enterprise value (on a cash-free/debt-free basis), along with accrued interest from Jan. 1, 2010, to the closing date, totaling 186 million euros. Teva benefited from all increases in equity and assets of ratiopharm beginning with that date. The U.S. dollar consideration paid by Teva amounted to $4.95 billion.
Teva is a leading worldwide pharma company dedicated to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients. With headquarters in Israel, Teva is the No. 1 generic drug maker globally, with a worldwide product portfolio containing 1,250-plus molecules and a direct presence in 60 countries. Teva’s branded businesses concentrate on neurological, respiratory and women’s health therapeutic fields as well as biologics. The company’s leading innovative product Copaxone is the most-prescribed treatment for MS.
The company generated net sales of $13.9 billion in 2009. For the third quarter of 2010, Teva’s net sales came in at $4.3 billion, representing a 20% increase year over year. Teva has 35,000-plus employees worldwide.
Ratiopharm’s product portfolio contains 500 molecules in more than 10,000 presentation forms encompassing all major therapeutic fields. This portfolio is marketed in 26 countries. According to ratiopharm, the company additionally has valuable know-how in biosimilars, consisting of various products in advanced stages of development and a well-established sales and marketing team. Ratiopharm worldwide revenue in 2009 came in at 1.6 billion euros.
According to Oliver Windholz, CEO of ratiopharm, “We are proud to join the Teva family. We have long viewed Teva as the right match for our company, thanks to its clearly defined strategic vision and commitment to generic medicines and its highly reputable management. We look forward to making this acquisition a success story both for our employees and for Teva, and will do our utmost to leverage ratiopharm’s activities into a truly advantageous business for Teva.”
On a pro-forma basis, the combined company would have produced 2009 revenue of $16.2 billion. The acquisition increases Teva’s European business from sales of $3.3 billion in 2009 to joint pro-forma sales totaling $5.2 billion.
With ratiopharm, Teva has improved its market position in Germany – the world’s No. 2 generic drug market valued at $8.8 billion (including sales to hospitals and OTC) as of March 2010 – to become the second-leading player in that country. The combined entity has a strong European footprint through the leading \position in 10 European markets, including key countries such as the U.K., Hungary, Italy, Spain, Portugal and the Netherlands. Teva now also holds a top three ranking in 17 countries, including Germany, Poland, France and the Czech Republic. Also, the acquisition of ratiopharm almost doubles Teva’s sales in Canada.
“This is an important acquisition for Teva,” Mr. Yanai stated on March 18. “This transaction is perfectly aligned with our long-term strategy in which Europe is an important pillar and growth driver. Ratiopharm will provide us with the ideal platform to strengthen our leadership position in key European markets, most notably in Germany, as well as rapidly growing generic markets such as Spain, Italy and France.”
“We are highly impressed by the team at ratiopharm and thrilled to be joining forces with a company we have partnered with in the past and have long respected,” according to Mr. Yanai. “Teva and ratiopharm have similar corporate cultures and share a strategic vision which makes this combination a natural fit. Together, we will be able to realize the vision of increasing patients’ access to safe, high-quality, affordable medications even more quickly and deliver even more value to our stakeholders across the globe.”
Teva expects synergies of at least $400 million from this deal, which should be fully realized within three years. The accord was expected to be earnings accretive within three quarters after closing, based on earnings per share according to U.S. GAAP reporting. The agreement was funded via a combination of cash on hand and lines of credit.
Another company acquisition made by Teva during 2010 was that of Theramex, Merck KGaA’s European-based women’s health business. As a unit of Merck Serono and a member of the Merck Group since 1999, Theramex has developed a strong brand image and a reputation for quality among female-health specialists. With 300-plus employees in France and Italy, Theramex generated 2009 sales of about 100 million euros. The company’s product offering spanned 50 countries. Product areas include gynecology, osteoporosis, peri-menopause, menopause and contraceptives. Company brands include Orocal, Colpotrophine, Lutenyl, Monazol, Estreva, Antadys and Leeloo Ge.
Theramex also was developing in partnership with Merck & Co. nomegestrol acetate (2.5mg)/17beta-estradiol (1.5mg). This combined oral contraceptive contains a unique combination of a natural estrogen identical to the estrogen produced by the woman’s own body and a selective progestin. The product was awaiting marketing approval in Europe, according to previous reports.
On Oct. 28, Teva entered into a definitive deal under to acquire Theramex and related companies from Merck Serono. Mentioned earlier in this report, Merck Serono discovers, develops, manufactures and markets innovative small molecules and biopharmaceuticals. In the United States and Canada, EMD Serono operates via separately incorporated affiliates.
With a yearly R&D expenditure exceeding 1 billion euros, Merck Serono is dedicated to growing its business in specialist-focused therapeutic fields. These fields include neurodegenerative diseases, oncology, fertility and endocrinology. Merck Serono also is exploring other areas potentially stemming from its R&D in autoimmune and inflammatory diseases.
Teva made a payment of 265 million euros at closing. Merck Serono is eligible to receive certain performance-based milestone payments. Teva funded the transaction from its internal resources. The deal was finalized on Jan. 5, 2011.
A significant amount of Theramex’s revenue derived from direct sales in France and Italy. Teva also landed distribution rights for Theramex’s products in certain countries, such as Spain and Brazil. Theramex’s product pipeline included a new oral contraceptive based on natural estrogens, NOMAC/E2. The drug successfully completed Phase III trials and was filed for approval in Europe. The Theramex operations are supported by an accomplished R&D team and a cost-effective API facility, which produces most of the company’s active pharmaceutical ingredient needs.
“This is an important acquisition for Teva’s women’s health franchise,” Mr. Yanai stated. “Theramex’s diversified product portfolio, its seasoned sales force and promising pipeline will be combined with the strong R&D capabilities and product portfolio of our U.S. women’s health business. Together the global team will accelerate the expansion of our women’s health franchise into key growth markets in Europe and around the world and provide an excellent springboard for future sales. We very much look forward to working together with Theramex’s experienced management team and having its work force join the Teva family.”
According to Elmar Schnee, a member of the Merck KGaA executive board and president of Merck Serono, “Theramex has built a solid reputation in France and Italy as a company dedicated to women’s health and gynecology. As Theramex is entering the contraceptive market, we firmly believe that a combination with Teva will not only contribute to growing its position in the gynecological market but also to building a major player in the area of contraceptives.”
5. Astellas Pharma Inc. and OSI Pharmaceuticals Inc.
One of Japan’s leading pharma companies, Astellas completed the $4 billion purchase of the biotech player OSI in June 2010, less than one month after the official acquisition announcement. OSI has mainly concentrated on the discovery, development and commercialization of molecular targeted therapies addressing medical needs in oncology, diabetes and obesity. OSI’s revenue for 2009 totaled $428 million and operating income came in at $153 million.
OSI has been developing new oncology medications. The Melville, N.Y.-based company has manufactured and sold Tarceva (erlotinib), a leading cancer medication. The blockbuster brand Tarceva also is marketed by Roche and Chugai Pharmaceutical Co.
Tokyo’s Astellas has about 16,000 employees worldwide and generated net sales of about $10.73 billion during the fiscal year ended March 31, 2010. Astellas is devoted to becoming a worldwide category leader in urology, immunology & infectious diseases, neuroscience, DM complications & metabolic diseases, and oncology.
OSI is anticipated to augment Astellas’ strong existing franchises in urology and transplantation. The joint company creates a world-class oncology platform supporting Astellas’ stated growth strategy of becoming a “Global Category Leader” in Oncology, which is a high-priority therapeutic category for Astellas.
Astellas completed the deal via a short-form merger without a meeting of OSI’s stockholders. Each outstanding share of OSI common stock not bought in Astellas’ tender offer or otherwise owned by Astellas was converted into the right to receive the same $57.50 consideration that was provided in the tender offer, without interest, except shares for which appraisal rights were validly asserted. The $57.50 per share price represented a premium of 55% to the closing price for OSI’s shares of $37.02 as of Feb. 26, 2010, the last trading day before the announcement by Astellas of its tender offer.
The boards of directors of both companies unanimously approved the all-cash transaction. As a result, OSI now operates as a wholly owned subsidiary of Astellas US Holding Inc., which is a holding company owned by Astellas Pharma.
“We are delighted to announce the completion of this transaction with OSI,” stated Masafumi Nogimori, Astellas president and CEO, on June 9. “We are truly excited by the opportunities that the combination will provide and we look forward to working with our new colleagues at OSI. This compelling transaction marks an important step forward for Astellas as the company works towards developing a world-class oncology platform and realizing our goal of improving the health of people around the world.”
On May 16, OSI CEO Colin Goddard, Ph.D., stated, “We believe today’s announcement recognizes the significant value we have built for our stockholders while providing the merged companies the opportunity to forge a stronger collective path forward in a shared mission to provide innovative new medicines to patients around the world.”
On that same day, Mr. Nogimori commented, “The merger with OSI provides Astellas with a top-tier oncology platform in the U.S. and an expanded product portfolio and pipelines. In addition to Tarceva, we are pleased to add its oncology infrastructure, discovery platform, expanded pipelines and talent base to our existing businesses. We look forward to working together with our OSI colleagues to grow the combined business and realize our shared goal of improving the health of the people around the world every day.”
Although this acquisitions was first announced by the companies on May 16, Astellas first publicized its courting of OSI on March 1. In a press release issued on that day, Astellas announced commencement of a tender offer to acquire all outstanding shares of common stock of OSI for $52.00 per share in cash, or an aggregate of $3.5 billion on a fully diluted basis. The all-cash offer represented a significant premium of more than 40% on the closing price of OSI’s common stock of $37.02 per share on Feb. 26, 2010, a 53% premium to its three-month average of $34.01 per share, and a 31% premium to its 52-week high of $39.66 per share.
OSI’s board of directors rejected this initial deal. Then on March 29, the two parties entered into a confidentiality deal through which OSI would provide Astellas with access to certain non-public information. Additionally, until 11.59 p.m. EST on May 15, 2010, Astellas agreed not to acquire any shares pursuant to its outstanding tender offer, take any further action on the pending litigation initiated by it, or file a preliminary or definitive proxy statement in connection with OSI’s annual meeting. This deal would terminate, among other things if OSI enters into or announces its intent to enter into an agreement with respect to an acquisition of OSI. Then on May 16, the two companies struck their deal.
Astellas’ “Global Category Leader” business model is part of the organization’s “VISION 2015” plan. According to Astellas, a GCL is in several ‘categories’ where high unmet medical needs exist and a high degree of expertise is necessary. A GCL demonstrates higher competitiveness by providing value-added products ‘globally’ and takes over the position of ‘leader’ in a category. Astellas “will seek to enhance enterprise value in a sustainable manner via heading maximization of value-added for all people seeking health, and creating a business model, a ‘Global Category Leader’ not just seeking for enlargement of sales scale.
“We do not merely aim for expanding the company’s sales, but we intend to continuously increase our corporate value by establishing this GCL business model and by ‘maximizing added value to people who wish to become healthy,’ including our patients.”
According to management, to realize being a GCL, Astellas will promote sustainable reinforcement of current products, solid progress of its existing product pipeline, further reinforcement of worldwide sales and marketing activities, and in-licensing and business development activities aggressively. Also, Astellas has settled on six categories – urology, inflammation/immunology, infectious diseases (virus), neurology/sharp pains, diabetes, and cancer – as its most significant R&D areas with concern of unmet medical needs, market potential, and research potential. Astellas intends to expand categories in a sustainable manner through aggressive investment in these areas and improvement of product creation.
6. Reckitt Benckiser Group Plc. and SSL International Plc.
Reckitt Benckiser is a leader in the worldwide household, health and personal-care sectors. The U.K.-based group operates in 60-plus countries through about 25,000 employees. Sold in nearly 200 countries, Reckitt Benckiser’s well-known brands throughout the years have included Finish, Vanish, Dettol, and Veet. The company strives to attain worldwide market leadership for them.
Reckitt Benckiser has 19 “Powerbrands” in high-growth areas. According to the company, the Powerbrands generate more than 70% growth. Innovations launched by Reckitt Benckiser during the past three years accounted for about 35% of the company’s net revenue.
Management says Reckitt Benckiser has outperformed its peers in top-line and bottom-line growth since 2004. The company’s sales have doubled since 2000 and its market capitalization has quadrupled since then.
Sales for Reckitt Benckiser should continue to grow for years to come due in part to a couple of company acquisitions during 2010. The lead acquisition was SSL International, which was announced during July and completed in November. SSL was a consumer products company with leading global brands such as the condom Durex and Scholl for footcare, and other significant brands such as Sauber and Mister Baby.
The company’s name was an abbreviated form of Seton Scholl London International, which was the predecessor businesses.
The acquisition of SSL provides Reckitt Benckiser with “an attractive opportunity to increase its presence in the health and personal-care sector.” For the fiscal term ended March 31, 2010, SSL reported sales of £802.5 million and operating profit of £126.0 million. For that period, SSL generated reported sales growth of 24.9% with 4.1% underlying growth for its branded consumer business and 1.8% underlying growth for the overall business.
With 10,000 employees, SSL had operations in more than 30 countries across Europe, Asia Pacific and the Americas. The company sold products into 100-plus countries and had manufacturing sites in India, Thailand, China and the United Kingdom.
SSL has been a worldwide leader in condoms for safe as well as more pleasurable sex. The company’s two major condom brands were Durex and Contex.
Scholl is the footcare leader in many markets and was owned by SSL in many countries outside of North America and Latin America. Scholl is additionally a top player in comfort footwear.
SSL’s local brands included Mister Baby, Sauber, Silkoplast, Meltus, Medised and Paramol. These brands were sold primarily in Europe.
SSL shareholders were entitled to receive 1,163 pence in cash per SSL Share and the proposed final dividend of 8 pence per share in respect to the fiscal year ended March 31, 2010, representing (in aggregate) 1,171 pence per SSL share. The offer price along with the SSL dividend valued SSL’s fully diluted share capital at £2.54 billion. The offer price combined with the SSL dividend represented a premium of 32.8% to the closing price of 882 pence per SSL share on July 20, 2010, which was the last business day before the announcement date.
“The acquisition of SSL will provide a step change to Reckitt Benckiser’s global health & personal care business, which has been a key driver of Reckitt Benckiser’s net revenue growth and profit progression,” stated Reckitt Benckiser CEO Bart Becht on July 21, the date of the acquisition announcement. “It is anticipated that the acquisition will increase Reckitt Benckiser’s health and personal-care net revenues by over 36% to approximately £2.8 billion, one third of the Group’s total net revenues.
“The acquisition will add two new Powerbrands, with good further growth potential, to Reckitt Benckiser’s current arsenal, making 19 Powerbrands in total. Durex, in the sexual well-being category, is the global No. 1 condom brand and Scholl is the market leader in the foot-care category in many of the markets where it is present.
“Underlying growth of SSL’s branded consumer business was 4% in its last financial year. We believe that we could drive further growth in the acquired business, especially Durex and Scholl, by investing in SSL and Reckitt Benckiser’s proven innovation and brand-building capabilities and by taking advantage of our greater distribution strength.
“The acquisition of SSL will also materially enhance the scale and critical mass of Reckitt Benckiser’s businesses in China and Japan.
“We expect cost synergies in the region of £100 million per annum from the combined group by the end of 2012, resulting in an improved margin profile for the acquired business. This, combined with the good growth potential of the SSL business, makes it an attractive acquisition for Reckitt Benckiser’s shareholders. Excluding restructuring charges, the deal is expected to be immediately earnings enhancing for Reckitt Benckiser.”
According to Gerald Corbett, SSL chairman, “In the last five years, product development, cost control, improvement to systems and supply chains and well-judged acquisitions have trebled SSL’s profits. Garry Watts (our CEO), his management team and every SSL employee around the world can be truly proud of what has been achieved. This offer is some four times the level of SSL’s share price five years ago. I believe few shares in investors’ portfolios have done as well. Reckitt Benckiser is a well-regarded company and I am sure our brands and people will be in good hands.”
Reckitt Benckiser reported revenue of £6.18 billion for the nine-month period ended Dec. 31, 2010, a 9% increase year over year. “For the full year [ending March 31, 2011], we are now targeting net revenue growth of +6% and net income growth of +16% for the total Group (both at constant exchange and excluding SSL).”
Another significant acquisition by Reckitt Benckiser took place at the end of 2010. In December, the company announced its acquisition of Paras Pharmaceuticals Ltd. for INR (Indian Rupees) 32.6 billion, or £460 million. Reckitt Benckiser purchased Paras from its current shareholders, including the Patel family, and Actis, an emerging markets private equity investor. Reckitt Benckiser is financing the deal from existing facilities.
Paras is a privately owned Indian company with leading Indian OTC health and personal-care brands. The brands include: Moov, the No 2 topical analgesic pain ointment; D’Cold, the second-leading cold and flu remedy; Dermicool, which is No. 2 for prickly heat; Krack, the leading medicated skin treatment for cracked heels; and the anti-fungal creams Itch Guard and Ring Guard. Paras also has a personal-care business that includes Set Wet, a leading hair gel and deodorant brand.
In the fiscal term ended in March 2010, Paras recorded net sales of INR 4 billion (£56 million), representing a mid-teens average growth rate during the previous four years. Operating EBITDA was INR 1.08 billion (£15 million).
Paras has a brand new state-of-the-art and GMP compliant manufacturing plant situated at Baddi in Northern India. The site has about 700 employees.
“The acquisition of Paras is another step forward in RB’s growth strategy in consumer health care,” Mr. Becht stated. “It creates a material health-care business in India, one of the most promising health-care markets in the world with the addition of a number of strong and leading brands.
“We believe the Paras business has not only extremely good growth potential, when supported by RB’s investment and innovation strength, we also expect to realize material synergies as a result of the integration of Paras into Reckitt Benckiser.
“The growth potential of the business, the creation of a material health-care business in India’s large and growing health-care market and the global synergies available make Paras an exciting addition to our portfolio and attractive opportunity for our shareholders.”
London-based pharmaceutical giant GlaxoSmithKline reportedly had been interested in buying Paras. During the first nine months of 2010, GSK’s consumer healthcare business reported OTC medicine sales of £1.81 billion, up 3% year over year.
7. The Carlyle Group and NBTY Inc.
NBTY has operated as a leading worldwide vertically integrated manufacturer, marketer and distributor of a broad line of high-quality, value-priced nutritional supplements. Under various NBTY and third-party brands, the company has offered more than 25,000 products. The broad product line includes those that full under these brands: Nature’s Bounty, Vitamin World, Puritan’s Pride, Holland & Barrett, Rexall, Sundown, MET-Rx, Worldwide Sport Nutrition, American Health, GNC, DeTuinen, LeNaturiste, SISU, Solgar, Good ‘n’ Natural, Home Health, Julian Graves, Ester-C, and Natural Wealth.
On Oct. 1, worldwide alternative asset manager The Carlyle Group completed its $4 billion acquisition of NBTY. Pursuant to the terms of the deal, NBTY’s stockholders are entitled to receive $55 in cash, without interest and less any applicable withholding taxes, for every share of NBTY common stock owned by them.
Equity capital for the acquisition came from Carlyle Partners V, a $13.7 billion U.S. buyout fund, and Carlyle Europe Partners III, a EUR 5.4 billion European buyout fund. Debt financing was provided by a group of banks headed by BofA Merrill Lynch, Barclays Capital and Credit Suisse.
The Carlyle Group had $90.6 billion of assets under management dedicated to 66 funds as of June 30, 2010. Carlyle invests amongst three asset classes – private equity, real estate and credit alternatives – in Africa, Asia, Australia, Europe, North America and South America. The firm concentrates on aerospace & defense, automotive & transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure, technology & business services, and telecommunications & media.
As of Oct. 1, The Carlyle Group had invested at least $61.2 billion of equity in 983 transactions dating back to 1987. The group employs 880-plus people in 19 countries. Carlyle portfolio companies have generated over $84 billion in revenue and employ more than 398,000 people globally.
The acquisition was first announced on July 15. NBTY’s board of directors unanimously approved the deal and recommended that its stockholders adopt the agreement with Carlyle.
“This transaction delivers exceptional value to our shareholders,” stated NBTY Chairman and CEO Scott Rudolph on July 15. “For our wholesale and retail customers, our commitment to quality and innovation will continue to be our focus. We will leverage Carlyle’s global resources and consumer sector knowledge to further drive the company’s global growth.”
According to Sandra Horbach, Carlyle managing director and head of the Consumer and Retail sector team, “NBTY is an outstanding business with well-established brands, a proven vertically integrated multi-channel/multi-geography strategy and strong, long-standing customer relationships. We are impressed with the business that has been built under the leadership of Scott Rudolph, and are excited to work with him and the senior management team to drive continued growth.”
NBTY reported its last quarterly results on July 28, 2010. For the nine-month period ended June 30, 2010, net sales totaled $2.2 billion versus $1.9 billion for October 2008-June 2009, marking a 13% increase. Net income for the three-quarter period ended in June 2010 amounted to $188 million, or $2.94 per diluted share, compared to net income of $82 million, or $1.31 per diluted share, for the nine months ended June 30, 2009. Adjusted EBITDA was $372 million versus $225 million for the nine-month term ended in June 2009.
Net sales during the quarter ended June 30, 2010, for NBTY’s Wholesale/US Nutrition division rose $38 million, or 10%, to $435 million. This division markets many branded products such as Nature’s Bounty, Osteo Bi-Flex, Rexall, Sundown, Ester-C, Pure Protein, Solgar, and private-label products.
For the same quarter, net sales for the North American Retail division reached $53 million, up 3% from the June 2009 period. This division consists of Vitamin World stores in the United States and LeNaturiste stores in Canada. Same-store sales were up 2% for the fiscal third-period 2010. The modernization of the Vitamin World stores continued during the quarter.
During the company’s fiscal third-quarter 2010, the North American Retail division opened five new stores and shut down two. At the end of the quarter, the North American Retail division operated 534 stores: 451 Vitamin World stores in the United States and 83 LeNaturiste stores in Canada.
European Retail net sales for the June 2010 quarter totaled $152 million, up 1% year over year. In British Pound Sterling, European Retail net sales advanced 5% and same-store sales were up 1%. NBTY continued to integrate the Julian Graves operations into the European Retail Division. During the June 2010 period, 24 Julian Graves stores were converted into Holland & Barrett or GNC stores.
As of June 30, 2010, NBTY’s European Retail division included 586 Holland & Barrett stores, 296 Julian Graves stores and 43 GNC stores in the United Kingdom, 29 Nature’s Way stores in Ireland, and 88 DeTuinen stores in the Netherlands. In all, the company had 1,042 stores in Europe and 8 Holland & Barrett franchised stores in South Africa, Singapore and Malta.
For the period ended in June 2010, net sales from Direct Response/E-Commerce operations rose 7% to $57 million. According to NBTY, as this division varied promotional strategy throughout the fiscal year, its results should be viewed on a yearly and not quarterly basis. Puritan’s Pride, the leader in the Direct Response and E-Commerce sectors, continued to grow the number of products available via its catalog and Websites. On-line sales accounted for 56% of total sales for fiscal third-period 2010, versus 51% for the June 2009 quarter.
8. Abbott Laboratories and Piramal Healthcare Ltd.’s Healthcare Solutions Business
Upon completing the acquisition of Piramal’s Healthcare Solutions business in September 2010, Abbott is positioned as the No. 1 pharma company in India. This strategic maneuver also helps accelerate Abbott’s growth in emerging markets. During the past decade, Abbott established a leading presence in emerging markets and now more than 20% of its overall sales stem from these growing economies.
“The acquisition of Piramal’s Healthcare Solutions business further strengthens Abbott’s growing presence in emerging markets,” stated Miles D. White, Abbott chairman and CEO, on Sept, 8. “Piramal’s portfolio of well-known, trusted products has served patients in India for decades. Combined with existing product offerings, Abbott is uniquely positioned to meet the needs of one of the world’s fastest-growing pharmaceutical markets.”
The rapid pharma growth in India is being spurred primarily by branded generics. The market was expected to generate nearly $8 billion in pharma sales during 2010, and that amount is projected to more than double by 2015. Through 20% yearly growth, Abbott expects its pharma sales in India to top $2.5 billion by 2020.
“With this deal, the combined Healthcare Solutions and Abbott businesses will become the clear market leader in India, with a market share of approximately 7%,” stated Ajay Piramal, chairman of the Piramal Group.
Abbott is a worldwide, broad-based healthcare company dedicated to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. The Abbott Park, Ill.-based company has 90,000 employees with products in 130-plus countries.
Piramal’s Healthcare Solutions business consists of a comprehensive portfolio of branded generics. The Mumbai-based company’s market-leading brands in multiple therapeutic fields include antibiotics, respiratory, cardiovascular, pain and neuroscience. Combined annual sales for these brands are expected to top $500 million in India during 2011. The business generated 23% growth during the fiscal year ended March 31, 2010, which was ahead of the market rate in India.
Piramal’s strong commercial presence includes the largest sales force in India. The company’s unique business model includes dedicated sales reps in rural areas inhabited by 70% of the population.
“Piramal’s proven business model in India and experienced local leadership team, combined with the global resources of Abbott, will allow us to build upon Piramal’s commitment to quality and service,” stated Michael J. Warmuth, senior VP, Established Products, Pharmaceutical Products Group, Abbott.
Abbott, via a wholly owned subsidiary, bought the assets of Piramal’s Healthcare Solutions business for a $2.12 billion up-front payment. Starting in 2011, there will be four annual payments of $400 million. This deal was not expected to affect Abbott’s earnings per share guidance in 2010.
The Piramal Healthcare Solutions business had more than 5,000 employees in India. After the acquisition, Abbott employs about 10,000 people across all of the company’s businesses in India. The combined sales forces of Abbott and Piramal’s Healthcare Solutions business represents the industry’s largest in India.
2010 marked Abbott’s 100th year in India. During 1910, Abbott became one of the first multinationals to establish operations in that country.
“This strategic action will advance Abbott into the leading market position in India, one of the world’s most attractive and rapidly growing markets,” Mr. White commented on May 21, the date of the acquisition announcement. “Our strong position in branded generics and growing presence in emerging markets is part of our ongoing diversified pharmaceutical strategy, complementing our market-leading proprietary pharmaceutical offerings and pipeline in developed markets.
“Emerging markets represent one of the greatest opportunities in health care – not only in pharmaceuticals – but across all of our business segments. Today, emerging markets represent more than 20% of Abbott’s total business.”
As part of Abbott, the acquired business continues to be led by its existing India-based management team. The Healthcare Solutions business is functioning as a separate business unit and reports into Abbott’s Established Products Division (EPD). This stand-alone division was announced by Abbott on May 11, 2010. The EPD was formed to concentrate on branded generics and maximize the opportunity in emerging markets.
The EPD is focused on expanding the market for Abbott’s established pharma portfolio outside of the United States, especially in emerging markets. The division is headed by Mr. Warmuth, who has significant experience in Abbott’s pharma business. Mr. Warmuth previously was in charge of Abbott’s Diagnostics Division.
“Our new Established Products Division, with $5 billion in sales, will focus on expanding our presence and product offerings in the world’s fastest-growing emerging markets,” stated Olivier Bohuon, executive VP of Abbott’s Pharmaceutical Products Group, on May 11. EPD is part of the Pharmaceutical Products Group that reported to Mr. Bohuon. However, in July 2010, Mr. Bohuon announced his retirement from Abbott. Richard A. Gonzalez, who retired as president and chief operating officer of Abbott during 2007, succeeded Mr. Bohuon on an interim basis. Since 2009, Mr. Gonzalez had lead Abbott Ventures Inc., an investment arm of the company.
Abbott’s growing portfolio of established products includes branded generics, which have important brand equity in many international markets. According to Abbott, these products provide durable, sustainable franchises for future growth. This complements the company’s successful proprietary products business and proprietary pharma pipeline.
Pharma sales in emerging markets are anticipated to increase at three times the rate of developed markets and represent 70% of the industry’s growth during the next few years. Branded generics are considered the most significant growth opportunity in emerging markets. Branded generics make up roughly one-quarter of the worldwide pharma arena, represent the majority of market share in the largest emerging economies, and are expected to outpace growth of patented and generic products.
Abbott additionally bolstered its presence in India during May 2010 via a license and supply deal with Zydus Cadila of India. Through the pact Abbott will commercialize a portfolio of pharma products in 15 emerging markets, allowing the company to further accelerate its emerging markets growth. Financial terms were undisclosed.
Abbott obtained rights to at least 24 Zydus products in 15 key emerging markets where Abbott has a strong and growing presence. The deal additionally includes an option for another 40-plus Zydus products to be added the collaboration.
“The Zydus agreement complements our established products strategy, augmenting this business with a broad portfolio of branded generics,” Mr. Bohuon stated.
This collaboration involves medicines for pain, cancer and cardiovascular, neurological and respiratory diseases. The agreement leverages Abbott’s powerful emerging markets infrastructure to commercialize the Zydus products, with product launches starting during early 2012.
“We have always believed in working with partners for win-win alliances that look at new opportunities for growth and expansion,” according to Pankaj R. Patel, chairman and managing director of Zydus Cadila. “In this alliance we see tremendous opportunity to participate in multiple ways in a market that is growing and expanding rapidly. Building on our mutual strengths we are creating a considerable competitive advantage for value creation for both partners over the long term.”
Abbott during the past decade built a leading portfolio of branded generics via the company’s own products as well as those acquired with the 2001 purchase of Knoll Pharmaceutical Co. During 2007, Abbott created a separate business unit within its international pharma division committed to established products.
Also, a new geographic region concentrated on Russia, India and China was established by Abbott. As a result, Abbott’s growth rate doubled in those countries.
In February 2010, Abbott completed the acquisition of Solvay Pharmaceuticals. Through this deal, Abbott landed a diverse branded generics portfolio, providing important critical mass in key emerging markets.
As a result of all of these transactions, Abbott ranks among the leading multi-national health-care companies in many emerging markets.
Abbott was busy purchasing other companies in 2010, including April’s completed acquisition of Facet Biotech Corp. This transaction, first announced on March 9, bolsters Abbott’s pharma pipeline in the areas of immunology and oncology.
Abbott acquired Facet Biotech for $27 per share in cash for a net transaction value of $450 million. This includes a purchase price of $722 million minus Facet’s projected cash and marketable securities at closing of $272 million.
Facet Biotech provides Abbott with a promising biologic intended to treat multiple sclerosis as well as compounds that complement its existing diverse oncology program. The promising biologic is daclizumab – a Phase III investigational biologic intended to treat multiple sclerosis. The oncology compounds are in early-stage to mid-stage development. They are being studied to treat various forms of cancer, such as multiple myeloma and chronic lymphocytic leukemia. Daclizumab is being developed in collaboration with one of the biotech industry’s leaders, Biogen Idec Inc., and some of the oncology compounds are being developed with other parties.
These novel compounds complement Abbott’s leading-edge research in oncology, which includes three compounds in mid-to-late stage development: the Bcl-2 family protein antagonist ABT-263; the PARP inhibitor ABT-888; and the multi-targeted kinase inhibitor ABT-869. Abbott additionally is advancing through its product pipeline treatments for conditions such as Alzheimer’s disease, schizophrenia, hepatitis C and pain.
“Facet’s depth of biologics experience and sophisticated antibody engineering platforms complement Abbott’s current R&D programs in oncology, immunology and other therapeutic areas,” stated John Leonard, M.D., senior VP of global pharma R&D for Abbott.
“We believe this transaction provides full and fair value for our stockholders and validates the potential of Facet’s clinical and technology assets, all of which has resulted from the effort and dedication of our employees,” commented Faheem Hasnain, president and CEO of Facet Biotech. “Abbott’s depth of expertise in immunology and oncology makes it an excellent organization to maximize the full potential of these promising clinical programs and technologies.”
Abbott reported full-year 2010 net sales of $35.17 billion, representing a 14.3% increase versus the 2009 figure. In January 2011, the company issued continuing EPS guidance for full-year 2011 reflecting double-digit growth compared with 2010 at the midpoint of the range.
“Despite a very challenging environment, 2010 was another productive year for Abbott, resulting in strong financial performance,” Mr. White stated. “We also took decisive long-term strategic actions to expand our emerging markets presence and late-stage pipeline to better position Abbott for sustainable long-term growth. We anticipate delivering another year of double-digit ongoing earnings-per-share growth in 2011.”
9. Pfizer Inc. and King Pharmaceuticals Inc.
As this special report went to press, Pfizer’s acquisition of King Pharmaceuticals had not been completed. The $3.6 billion cash deal was announced on Oct. 12. The $14.25 per share price represents a premium of 40% to King’s closing price as of Oct. 11, 2010, and 46% to the one-month average closing price as of the same date.
The deal was approved by the boards of each company. The transaction is expected to be accretive to Pfizer’s adjusted diluted earnings per share by 2 cents annually in 2011 and 2012, and 3-to-4 cents per year from 2013 through 2015. Pfizer expects the accord will yield initial cost savings from operating expenses of at least $200 million, which are expected to be fully realized by year-end 2013.
With headquarters in Bristol, Tenn., King is a vertically integrated branded pharma company. King seeks to capitalize on opportunities in the pharma industry via the development – including through in-licensing pacts and acquisitions – of novel branded prescription pharmaceutical products and technologies that complement its concentration in specialty-driven markets, particularly neuroscience and hospital. King’s wholly owned subsidiary Alpharma LLC is a leader in the development, registration, manufacture and marketing of pharma products for food-producing animals.
“We are highly impressed by King’s innovative products and technology in the pain-relief disease area, as well as by its success in advancing promising compounds in its pipeline,” according to Jeffrey Kindler on Oct. 12, who at the time was Pfizer chairman and CEO until he unexpectedly retired in December. Ian C. Read has become president, CEO and director of Pfizer. “The combination of our respective portfolios in this area of unmet medical need is highly complementary and will allow us to offer a fuller spectrum of treatments for patients across the globe who are in need of pain relief and management. In addition, the revenue generated by King’s portfolio will further diversify Pfizer’s business, while at the same time contributing to steady earnings growth and shareholder value.”
New York-based Pfizer’s roots date back more than 150 years ago. The company’s diversified worldwide healthcare portfolio includes human and animal biologic and small-molecule medicines and vaccines, along with nutritional products and global consumer brands. During the first three quarters of 2010, Pfizer revenue totaled $50.2 billion, up 50% year over year.
The acquisition further expands Pfizer’s business profile, including immediate, incremental diversified revenue generated by King’s portfolio. Significant revenue sources include the prescription pharma business concentrated on delivering new formulations of pain treatments that are designed to discourage common methods of misuse and abuse; the Meridian auto-injector business for emergency drug delivery, which develops and manufactures EpiPen and is a long-term, critical supplier to the U.S. Department of Defense; and an animal-health business with feed-additive products for a broad array of species.
King’s three key business areas are considered complementary to Pfizer’s businesses and strategically aligned with Pfizer’s Primary Care, Established Products and Animal Health business units. This will allow for a seamless combination that will maximize King’s assets with Pfizer’s worldwide organization’s scale and resources.
This business combination will enable Pfizer to leverage its existing commercial capabilities and expertise to create one of the biopharma industry’s leading broad portfolios for pain relief and management. Pfizer will be able to offer currently marketed opioid and non-opioid products as well as a pipeline spanning all phases of clinical development. In addition to Pfizer’s marketed treatments for pain – including the blockbuster brands Lyrica and Celebrex – King offers Avinza, the Flector Patch and the recently launched Embeda. The latter is the first approved opioid pain product with design features intended to discourage misuse and abuse. King also has two compounds in the registration phase that have the potential to lower the risk of abuse, along with other compounds in development.
“We are highly impressed by King’s innovative products and technology in the pain-relief disease area, as well as by its success in advancing promising compounds in its pipeline,” Mr. Kindler commented. “The combination of our respective portfolios in this area of unmet medical need is highly complementary and will allow us to offer a fuller spectrum of treatments for patients across the globe who are in need of pain relief and management. In addition, the revenue generated by King’s portfolio will further diversify Pfizer’s business, while at the same time contributing to steady earnings growth and shareholder value.”
The market for pain-relief and management treatments is on the rise, with American physicians having written 320 million prescriptions to treat pain during 2009. However, the widespread misuse and abuse of prescription pain treatments is a major public-health issue and an increasing economic burden for the healthcare industry. King’s leadership in new formulations of pain treatments designed to discourage common methods of misuse and abuse will provide Pfizer with multiple new drug-delivery platforms with potential long-term upside.
“By bringing together King’s capabilities in new formulations of pain treatments, designed to discourage common methods of misuse and abuse, with Pfizer’s commercial, medical and regulatory expertise, global strength in patient services and reimbursement, and global scale and resources, we believe Pfizer can build on our foundation and take our business to the next level,” stated King Chairman and CEO Brian Markison.
On Jan. 21, 2011, Pfizer announced that its wholly owned subsidiary Parker Tennessee Corp. had extended the expiration date of its tender offer for all of King’s outstanding shares of common stock. The tender offer was rescheduled to expire at 5:00 p.m. EST on Jan. 28, 2011, unless additionally extended. The tender offer had previously been set to run out at midnight EST on Jan. 21, 2011; Dec. 17, 2010; and Nov. 19. The tender offer was extended because certain conditions to the tender offer were not satisfied as of the previously scheduled expiration date, including the expiration or earlier termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Another company acquisition by Pfizer in 2010 was that of FoldRx Pharmaceuticals Inc. Pfizer completed the acquisition of the privately held drug-discovery and clinical-development company on Oct. 6. As a result, FoldRx became a wholly owned subsidiary. Although specific financial terms were undisclosed, Pfizer made an up-front payment and contingent payments will occur if certain milestones are attained.
FoldRx is a development and discovery company that has concentrated on first-in-class, disease-modifying, small-molecule therapeutics to treat diseases of protein misfolding and aggregation (amyloidosis). This business focus was based on the pioneer work of the company’s scientific founders, Jeffery Kelly (The Scripps Research Institute) and Susan Lindquist (Whitehead Institute).
By applying its proprietary expertise in protein folding and the company’s platform for drug and target discovery, FoldRx built a pipeline initially for neurodegenerative and respiratory conditions. The pipeline includes a program in advanced clinical development to treat genetic neurologic and cardiovascular disorders, Transthyretin (TTR) Amyloid Polyneuropathy (ATTR-PN) and TTR Amyloid Cardiomyopathy (ATTR-CM). There is also a discovery program in cystic fibrosis, Parkinson’s, and Huntington’s disease based on FoldRx’s broad, proprietary, yeast-based drug-discovery platform. Company investors have included Alta Partners, Fidelity Biosciences, Healthcare Ventures, Morgenthaler Ventures, Novartis Venture Funds, Novo Ventures, and TPG Biotechnology.
FoldRx’s portfolio includes clinical and pre-clinical programs for investigational compounds to treat diseases resulting from protein misfolding. This process is growingly being recognized as an underlying cause in many chronic degenerative diseases.
FoldRx’s lead product candidate is the new molecular entity and first-in-class agent tafamidis. The oral, disease-modifying therapy is in registration for TTR amyloid polyneuropathy. This is a progressively fatal genetic neurodegenerative disease for which liver transplant is the only treatment option currently available.
FoldRx submitted a marketing authorization application (MAA) for tafamidis with the European Medicines Agency. The Cambridge, Mass.-based company, has had dialog with FDA to define the drug’s pathway for U.S. filing. Tafamidis was granted orphan-drug designation in the United States and European Union and Fast-Track designation by FDA for treating ATTR-PN.
Transthyretin is an amyloidogenic protein that is secreted by the liver. Mutations in the TTR gene have been associated with several amyloid conditions. Deposition of TTR amyloid in the peripheral nerve tissue leads to ATTR-PN, a sensory, motor and autonomic polyneuropathy.
The disease typically starts in the third or fourth decade with symptoms of peripheral and/or autonomic neuropathy that inexorably advance to involve muscle strength with loss of ambulation. Patients commonly experience a profoundly diminished quality of life with a markedly reduced life expectancy (10 years from first symptom). Liver transplantation is the only accepted treatment, but that is not uniformly effective and is associated with significant mortality. According to estimates, ATTR-PN affects at least 8,000 patients worldwide, most of whom are situated in the European Union.
“Over the past five years the FoldRx team has successfully developed tafamidis from the bench stage to MAA submission,” commented Richard Labaudiniere, Ph.D., FoldRx president and CEO. “Pfizer’s strong clinical and regulatory resources, global marketing reach, and commitment to the treatment of rare diseases will significantly enhance the ability to pursue the goal of efficiently bringing tafamidis to all patients affected by this devastating neurodegenerative disease.”
FoldRx has used its proprietary yeast-based drug-target discovery platform to build a portfolio of preclinical and clinical candidates. The company’s screening engine is rapid and efficient in evaluating potential treatment candidates in a broad array of diseases caused by misfolded proteins. Through this screening engine, FoldRx is actively engaged in an innovative early drug-discovery program to identify therapeutic agents for cystic fibrosis, Parkinson’s disease, as well as Huntington’s disease.
“By combining FoldRx’s proprietary expertise in identifying and developing treatments for protein misfolding diseases with Pfizer’s commercial, medical and regulatory expertise, and global strengths in patient services and reimbursement, we are taking a significant step toward potentially bringing, for the first time, a non-surgical treatment option for underserved patients affected by the deadly disease ATTR-PN,” stated Geno Germano, president and general manager of Pfizer Specialty Care Business Unit. “This transaction will add another important component to the growing portfolio of innovative in-line and investigational medicines for orphan and rare diseases within Pfizer’s Specialty Care Business, and will complement the current and planned future research and clinical development taking place in Pfizer’s Specialty Care Neuroscience disease area.”
Including agreements for product rights, development collaborations, etc., Pfizer was one of the most active deal makers in the pharma industry during 2010. Pfizer also reportedly attempted to purchase the German generic manufacturer ratiopharm.
10. Grifols SA and Talecris Biotherapeutics Inc.
The marriage of the global healthcare company Grifols and U.S.-based biotherapeutic player Talecris will result in a diversified, worldwide provider of life-saving and life-enhancing plasma protein therapeutics.
This combination joins together the strong worldwide presence of Grifols and the established position of Talecris in United States and Canada.
This transaction accelerates key strategic initiatives for Talecris and Grifols, creating a more efficient platform for manufacturing, innovation and worldwide sales and marketing. Blending the expertise of each company will increase the availability of high-quality plasma-protein therapies for patients around the globe.
Plasma-protein therapy leader Grifols is a Spanish holding company that concentrates in the pharma-hospital sector. With a presence in 90-plus countries, Grifols researches, develops, manufactures and markets plasma derivatives, IV therapy, enteral nutrition, diagnostic systems as well as medical materials.
Talecris is a worldwide biotherapeutic and biotech company that discovers, develops and produces critical-care treatments for people with life-threatening disorders in various therapeutic fields. These areas include immunology, pulmonology, neurology, critical care, and hemostasis.
Talecris is to be acquired for a combination of cash and recently issued Grifols non-voting shares for an aggregate value of $3.4 billion (EUR 2.8 billion). Grifols will acquire all Talecris common stock for $19 in cash and 0.641 newly issued non-voting Grifols’ shares for each Talecris share. Based on the closing price of Grifols’ ordinary shares as of June 4, 2010, and prevailing Euro-Dollar exchange rates, this amount represents an implied price of $26.16 per Talecris share. That constitutes a premium of 53% to the average closing price of Talecris common stock during the previous 30 days to the June 7 announcement. The resulting transaction value, including net debt, is $4 billion (EUR 3.3 billion).
The combination is expected to generate $230 million in operating synergies from a more-efficient plasma-collection network, optimized manufacturing sales, marketing and R&D, which Grifols expects to realize during the next four years with an associated one-time cost of $100 million. The deal is expected to be accretive to earnings in the first year and result in meaningful accretion starting in the second year.
Once the transaction is completed, Grifols expects that its initial net debt to EBITDA ratio will reach five times. Grifols expects the joint business will generate significant free cash flow during the near term, which together with the synergies will enable it to reduce leverage rapidly. Company management expects a progressive reduction in debt ratios to three times EBITDA by year-end 2012 and below two times by year-end 2014, even as key capital programs are sustained.
Grifols/Talecris will have pro-forma annual revenue of $2.8 billion. Of that amount, 58% is from North America, 28% comes from Europe, and 14% stems from the rest of the world.
The new vertically integrated and diversified international plasma-protein therapies company will have complementary geographic footprints and products, along with increased manufacturing scale. Grifols’ available manufacturing capacity will allow Talecris to raise production in the near term. As a result, the combined business will be better equipped to meet the needs of more patients with under-diagnosed disease states worldwide.
The combination of Grifols and Talecris will also result in the following:
- the ability to derive more protein therapies from every liter of plasma, thereby enhancing access and availability for patients and optimizing use of collected plasma;
- an established plasma-collection operation with the ability to meet the combined business’ needs to address rising patient demand and an accelerated path to improving the cost efficiency of the Talecris plasma platform;
- a wide array of key products addressing different therapeutic fields including neurology, immunology, pulmonology and hematology among others;
- an enhanced R&D pipeline of complementary products and new recombinant projects that will propel sustainable growth;
- a well-established U.S. clinical research program.
“The acquisition of Talecris furthers our vision to better serve patients and health-care professionals with innovative products, a strong clinical research capability and new research into recombinant therapies,” said Grifols Chairman and CEO Victor Grifols. “We look forward to combining the strengths of both companies to improve the quality of the lives of patients around the world, while positioning the enlarged group for long term profitable growth.”
According to Lawrence D. Stern, chairman and CEO of Talecris, “We believe that Grifols’ well-established reputation, know-how and expertise will enable the combined entity to meet the needs of more patients. Our employees will benefit from the opportunities available to them as part of a larger, global organization committed to the expansion of Talecris’ existing business, the development of our pipeline products, and the maintenance of our culture of compliance and quality. Importantly, our stockholders will realize a compelling premium and benefit from the ability of the combined business to accelerate key gross margin improvement opportunities within Talecris.”
Grifols reported that its turnover for the first nine months of 2010 reached 738.8 million euros, representing a 7.1% increase year over year. Third-quarter 2010 sales advanced 14.6% versus third-period 2009 and topped 251 million euros, which was a record turnover for the group.
Talecris was the target of a previous acquisition attempt by CSL Ltd. During May 2009, the Federal Trade Commission authorized a lawsuit to block CSL’s proposed $3.1 billion acquisition of Talecris. The FTC charged that the transaction would be illegal and would substantially reduce competition in the U.S. markets for four plasma-derivative protein therapies – Immune globulin (Ig), Albumin, Rho-D, and Alpha-1. These therapies are used for the treatment of patients suffering from illnesses like primary immunodeficiency diseases, chronic inflammatory demyelinating polyneuropathy, alpha-1 antitrypsin disease, and hemolytic disease of the newborn.
According to the FTC’s administrative complaint, CSL’s proposed acquisition of Talecris would be anticompetitive and violate federal antitrust laws. The proposed deal would have cut down the number of competitors in the U.S. markets for Ig and Albumin from five to four, thereby leaving the top two remaining competitors – CSL and Baxter International Inc. – accounting for 80-plus percent of each market. Additionally, in the U.S. markets for Rho-D and Alpha-1, the proposed deal would have reduced the amount of competitors from three to two.
The CSL Group has more than 90 years of history in developing and manufacturing vaccines and plasma protein biotherapies. With major facilities located in Australia, Germany, Switzerland and the United States, CSL has more than 10,000 employees in 27 countries. The Parkville, Australia-based company’s areas of expertise are plasma products as well as vaccines & pharmaceuticals. CSL’s revenue for the fiscal year ended June 30, 2010, came in at nearly $4 billion.
Based in Deerfield, Ill., Baxter develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a worldwide, diversified healthcare company, Baxter applies a unique blend of expertise in medical devices, pharmaceuticals and biotechnology to create products that advance patient care around the globe. For the first nine months of 2010, the corporation reported revenue of $9.3 billion, representing 3% growth versus the figure for January-September 2009.