Consolidation in the Pharmaceutical

IndustryCharles Baum, MD, MS, FACG

Vice President and Head US Medical AffairsTakeda Pharmaceuticals USA

Bio-Pharma M&A History

• 30 y consolidation: ~110 companies >>> 30• Early – national consolidation (e.g., Glaxo, Welcome and Smith/Kline)• Later

– US market serves as nidus for small overseas companies– Multinational consolidation

David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

The History of Bio-Pharma M&A's: Pfizer

David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

10 companies >>>>> 1

The History of Bio-Pharma M&A's: Sanofi

David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

18 companies >>>>> 1

Historical Drivers of M&A• 1980's (profit pressure)

- Rising R+D costs- Passage of Waxman Hatch Act- Price competition from generics

• 1990's (declining profits)- LOE and end of blockbuster era- Rise of buyer-side market power (MCOs/PBMs)

• 2000's (single digit growth)- Shrinking Pipelines and Emergence of bio-techs- Overcapacity drives branded pharma M&A- Eliminating competition drives generics manufacturers M&A

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

5

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15

20

25

Annual Number of Pharmaceutical Mergers (2004-2014)

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1 Bi

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https://www.levinassociates.com/dealsearch

Overcapacity Drives M&As

• M&As result in cost savings of 30-40% appeasing investors• Restructuring of Development and Commercial functions

- Strategic shift from "me too" to novel specialty and orphan indications- New commercial models that leverage lower cost multi-channel/digital

marketing- A shift from salesforce to value-based contracts with payers and health

systems (IDNs)- Reduce research investment in favor of biotech partnerships and acquisitions.- Outsourcing

William Pursche: The McKinsey Quarterly, 1996

M&As Drive Global Footprint:Example -Takeda and Nycomed Merger

Low Interest Rates Favorable Exchange Rates

Medicaid Spending and Prescriptions for Albendazole (Amedra Pharma) and Mebendazole (Terminated by Teva)

High Cost Generic Drugs – Implications for patients and policymakers. Alpern et al., NEJM 371;20:1859-1862

Generics Manufacturers and Pricing

• Turing Pharmaceuticals- Martin Shkreli raises price of generic Daraprim (pyramethamine) from $13.50 to $750 per tab – used to treat life threatening toxoplasmosis infections in HIV and cancer patients

• Valeant has acquired 100 drugs and increased price of 56 drugs by average of 66%- The case of Isuprel and Nitropress (525% and 212% increases)- Ascension health has calculated cost impact for its system of ~$8 M.

• PhRMA speaks out

Despite Several Bad Actors Generic Drug Prices Continue to Fall

http://www.aarp.org/content/dam/aarp/ppi/2015/trends-in-retail-prices-of-generic-prescription-drugs.pdf

Impact of Consolidation for InnovatorsFinancial• Reduction in competition drives bargaining power with payers• Tax implicationsEfficiency• Greater expertise, deal making agility, regulatory successInnovation• Focused pipelines – specialty pharma, oncology and orphan

indications• Emphasis on Inorganic Growth

- Increase in venture capital and fostering of biotech- Academic partnerships

FDA Approvals Indicate M&As Have Positive Effect on Pharmaceutical Innovation

http://www.fda.gov/drugs/developmentapprovalprocess/druginnovation/ucm20025676.htm

Number of US Biotech Companies is Growing

27% Increase

since 2012

Public Co. Private Co. Total

http://www.statista.com/statistics/197930/number-of-united-states-biotech-companies-by-type/

Looking Beyond M&A

• Partnerships (basic and foundational research, co-promotion and co-development/commercialization arrangements)• Spinoffs and divestitures• Asset swap deals• ACA is helping drive alignment between payers, healthcare and

pharmaceutical manufacturers• Moving "beyond the pill" is driving non-traditional business

development