A chunk of change: Looking at the recent M&A landscape in pharma

19 June 2017 10:51

Despite a downturn in M&A activity during the latter part of 2016, prospects are on the rise. In this article, we analyse what deals are on the table, coming to the table and those that are still in the kitchen waiting to be plated up!

In general, one thing that can always be relied upon is the fact that there will be merger & acquisition (M&A) agreements in the pipeline or being completed upon at multiple points during the calendar year within the pharmaceutical industry. It is usually, as they say, ‘a dead cert’.

The trend for M&As, however, seems to be less than buoyant this year after the slowdown in 2016 due to the political uncertainties resulting from the Brexit vote and the US presidential elections.

Change is coming

Yet, last month, we witnessed the possible beginnings of a change in tide with Thermo Fisher announcing a $7.2 billion deal to buy the Dutch drug ingredients manufacturer, Patheon.¹ This transaction, which is expected to complete at the end of the year, will combine Patheon’s ability as a contract development and manufacturing organisation (CDMO) with Thermo Fisher’s capacity to supply to the biopharmaceutical industry, creating a ‘one-stop-shop’ for drug manufacturers looking to outsource.

Speaking about the deal, president and chief executive officer of Thermo Fisher Scientific, Marc N. Casper, said: “Patheon’s development and manufacturing capabilities are an excellent complement to our industry-leading offering for the biopharma market. Our combined capabilities will enhance our unique value proposition for these customers, create significant value for our shareholders and further accelerate our company’s growth.”

Chief executive officer of Patheon, James C. Mullen, added: “Over the past several years, we have increased our capabilities to become a leading CDMO provider in a highly-fragmented market. We are confident that our combined offerings and Thermo Fisher’s proven track record of disciplined M&A and successful integrations will take our business to the next level.”

Sell, sell, sell

This year, we have also seen the readying of Merck and Sanofi to sell or cut down their biosimilar and generics units, respectively.

In Merck’s Annual Report for the year 2016,² it was stated: “Merck is in advanced stages of negotiations to divest the Biosimilars business and the transaction is expected to close in 2017.” Despite its work with Dr Reddy’s in India since 2012 within the biosimilars arena, no product has been brought to market to date.

Sanofi’s approach was also outlined in their 2016 report³ and further iterated in the delivery of its annual sales and business growth analysis⁴

where it was stated: “As announced in our 2020 strategic roadmap, Sanofi has carefully reviewed all options for our Generics business in Europe and recently made the definitive decision to initiate a carve-out process expected to be completed by the end of 2018. Importantly, Sanofi confirms its commitment to Generics in other parts of the world with a greater focus on the Emerging Markets.” The strategy to slim down has also aligned with the company’s CEO asserting that Sanofi is in no hurry to do M&As, discussed during the announcement of the 2016 results.

On the cards

A possible big M&A movement is that of the potential Dow Chemicals merger with DuPont. This mega merger received conditional approval from the European Commission in March, representing a significant step toward closing the transaction.

The intention of the companies is to split into three separate publicly traded entities and, according to Dow, is expected to “create significant cost synergies of approximately $3 billion with the potential for $1 billion in growth synergies.”⁵

This conditional approval from the European Commission, however, has some provisos, with Dow and DuPont required to fulfil certain commitments that have been agreed upon with the European Commission in connection with the clearance.

Adding to this, there have been reports that GlaxoSmithKline is looking to buy out Novartis’ stake in consumer health JV.⁶ The funds raised from this potential buyout are being penned by industry watchers as an aide to a possible takeover by Novartis of AstraZeneca, which would give rise to a shift in the oncology sector.

Something in the air

As stated by the law firm, Hunton & Williams, in their overview analysis of the M&A landscape for this year: “[…] we believe the global economic environment is generally favorable for M&A. Growth continues to be low and stable, monetary policy remains loose and inflation does not appear to be an imminent issue. This economic environment will encourage companies to seek expansion through acquisitions rather than just through organic growth, and they should have little difficulty financing those acquisitions. The 2017 M&A outlook could change in an instant, but for now, however, we are broadly optimistic and look forward to an active year in both the US and global markets.”⁷

So, despite the downturn in M&A activity during the latter part of 2016, resulting from the US presidential election, and the turbulence in the economic sector that Brexit may cause for the UK and Europe, there is a definite feel that more big deals are on the way and surely a plethora of smaller deals in the offering too.

References:

Related

MGS Acquire Winther Mould Technology

Pfizer Completes $43 billion Acquisition of Seagen

Emmes Acquires VaxTRIALS

Sharp Acquire Berkshire Sterile Manufacturing