Business
Genentech. Dr Phelps says that any company consumer sales grew by 12%, double the business to extend its reach in the region.
operating in biologics, oncology or growth rate of its pharmaceuticals. These Egypt is a fast-growing area and could be a
immunology will command a premium. divisions are now regarded as core areas, platform to enter other countries in the
ImClone and Genentech have put up stout says Mr McCutcheon. However, the challenge Middle East and North Africa, GSK believes.
defences against initial takeovers and shown is that many of the larger, attractive It is also developing branded generics, which
that boards are prepared to fight for their consumer assets are not for sale, so “you’re are more popular in emerging markets as
shareholders. ImClone chairman Carl Icahn either in or out” of the business. “Companies the middle class expands, through an alliance
rejected Bristol-Myers Squibb’s takeover not in consumer may need to wait for the with South Africa’s Aspen Pharmacare
advances, initially at $60 per share and later next round of large cap pharma Holdings.
raised to $62 per share, on the basis that he consolidation to get the opportunity to build,
believed the offer undervalued ImClone’s but then the good assets will be highly cost control
worth. sought after,” he says. In the past 12 months, controlling costs has
But other biotechnology companies are The generics field is becoming another become a key factor influencing mergers or
not in a position of strength. In the current major area of diversification, a move that acquisitions. The growth in pharmaceutical
climate, M&A is a more attractive option for may have been anathema to pharma just a sales worldwide is expected to fall to about
smaller biotechs. Mr McCutcheon says that few years ago. But with the threat of patent 3% in 2010, but then negative growth
the market is extremely tough for small expiries, buying generics businesses, or at beyond 2010 as several patents expire.
players, with the IPO route closed and least considering other business models, now A number of companies, from big pharma
follow-on financings for private and public seems to make sense. This model could to biotechs, have announced plans to reduce
companies having to be done off of low become increasingly popular as the leading staff, cut back on clinical programmes or
valuations. “Investors are not feeling brave players seek to offset pipeline erosion and refocus their pipelines.
right now. Therefore, IPO candidates need to enhance competitiveness, says Mr Griffin. However, M&A can also help companies
pursue dual-track opportunities such as One recent example is Daiichi Sankyo to become more efficient and sharpen their
mergers or selling themselves rather than completing the takeover of India’s largest product focus. For example, in the UK, BTG
drifting.” generics manufacturer, Ranbaxy. More is merging with Protherics for £218.1 million
Leo Gribben, a director in Ernst & Young’s importantly, generics companies have shown to become the country’s largest speciality
pharmaceutical sector team, says: “The credit that they are on an equal footing with big company. BTG believes the deal will make it
crisis has created opportunity for companies pharma. more profitable as it will gain a portfolio of
with strong balance sheets to make In September, Zentiva, which is being late-stage products. More importantly, the
acquisitions at a significant discount to acquired by Sanofi-Aventis, rejected the combined company is expected to save
historical prices, not least because some French company’s initial offer, saying it fell around £20 million through synergies by
biotechs are struggling to refinance their short of its “fundamental value”. Sanofi- 2010-11. Elsewhere, King Pharmaceuticals
businesses and are viewed as ‘distressed’ Aventis was forced to raise its offer, from estimates that it will save around
assets.” Though he points out that for big CK1,050 ($52.50) to CK1,150 per share in $50-70 million annually in the second year
pharma, asset quality remains the major cash. Teva, the world’s largest generics after completing its acquisition of Alpharma.
driver in acquisitions’ decision-making. manufacturer, has continued to grow Given their array of challenges, in
While biotechs may be the prime target consistently over the course of the year, particular declining growth, and the desire to
for big pharma, others are targeting niche posting sales growth of 20% and a 14% diversify, Mr McCutcheon says that pharma
speciality areas. King Pharmaceuticals’ increase in net profit in the third quarter. companies are aggressively assessing
$1.6 billion acquisition of Alpharma Pharma’s move into generics is important potential acquisitions. In doing so, companies
succeeded only after it made hostile not just in terms of diversifying the business are broadening their scopes therapeutically,
advances towards Alpharma to boost its pain model, but also in terms of expanding into geographically and by business segment. If
product portfolio, moves which Alpharma new geographical emerging markets. the past 12 months are anything to go by,
had initially rejected. Other areas of As growth starts to slow in mature M&A activity will remain strong.
healthcare are also starting to attract markets such as North America and Europe, According to Dr Phelps, the days of the
attention. In April, Novartis paid Nestle the recent drive into emerging markets mega mergers, where one big pharma
$11 billion for a 25% stake in Alcon, the seems logical. Mr Gribben says that the merges with another, are over. “Peers are
world’s biggest eye care company, with a margins may not be as high in these also facing declines so what you’d get is an
view to securing a majority holding. geographical areas as well-established even bigger company facing even bigger
Dr Phelps says that there is a bigger reach in markets. But if products are becoming declines,” he notes. Therefore, the more likely
eye care, giving Novartis greater margins and genericised, the industry needs to go for deals will be done with medium-sized
rest-of-the-world coverage. volume, he adds. companies that still have room for growth or
Consumer businesses are once again AstraZeneca reported 18% growth in those that can offer a different model to
becoming popular as a way of diversification. emerging markets compared with 1% in pharma.
GSK, for example, plans to build its consumer North America and 2% in other established
business through this strategy, as a way of markets in its third-quarter results. Schering-
complementing and driving the growth of Plough’s third quarter also benefited from
other key franchises. In the third quarter of strong sales in emerging markets, accounting
2008, the sales growth of several large for 12% of total net sales, double the figure
corporations’ consumer divisions was greater in 2005. At the end of September, Pfizer
than that of their pharmaceutical businesses. announced plans to offset the generic Sita Shah is Scrip’s senior
For example, the sales of Bayer’s consumer erosion of Lipitor (atorvastatin) sales by companies reporter.
healthcare division rose by 5% in the three targeting growth in emerging markets.
months to September 30th, compared with Elsewhere, GSK recently bought Bristol-
3% for pharmaceuticals, while GSK’s Myers Squibb’s Egyptian mature products
www.scripnews.com/supplements Scrip 100
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