A Better Understanding of the US Drug Pricing Landscape and Financial Risks Associated – Health Affairs Blog

An excellent article posted on the Health Affairs blog takes a step back regarding US drug pricing and the financial risks associated with drug development well beyond the clinical trials stage.

Key quotes from the article:

  • It may be helpful for the policy discussion to think of a drug’s value as the clinical performance and patient outcomes, while the price reflects both the value and the growing uncertainty around in-market risks of market consolidation and restricted access, branded therapeutic competition, mandatory discounts, and restrictive coverage policy.
  • As competition heats up, each sector and each entity strives to reduce input costs and maintain or improve prices — and consolidation can be an important tool to accomplish these goals. Specific to biopharma, consolidation strengthens payers’ and providers’ ability to press for drug discounts that are contractual, proprietary, and confidential.
  • Net lifetime revenues of new biopharma therapies declined from profitability in the late 1990s to slightly negative profitability by the end of the first decade of 21st century.
  • In addition to cross-sector market competition through payer and provider consolidation, there is growing intra-sectorial competition among generics, biosimilars, and branded therapeutic alternatives.
  • We should not underestimate the potential effect of mandatory price discounts on drug launch prices.
  • In-market risks for biopharma are very significant today. Because of rapid changes in the market environment, revenue expectations established when the decision is made to proceed with product development can be very different than actual revenue several years later when a product is launched.

 

Additional Resources

When Is a Virtual Business Model Suitable for Biopharmaceutical Companies? – BioProcess International – 2015

Understanding the pharmaceutical value chain – IMS Institute for Healthcare Informatics – 2014

Innovative Business Models in the Pharmaceutical Industry: A Case on Exploiting Value Networks to Stay Competitive – International Journal of Engineering Business Management – 2014

The Real Cost of “High-Priced” Drugs – Harvard Business Review – 2014

Rapid growth in biopharma: Challenges and opportunities – McKinsey – 2014

 

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Allergan & Teva – Two sides of one table

Deals

Allergan (former Actavis) is restructuring its operations with the divestment of its generics business to Teva for approximately USD 41 billion in cash and stock ($33.75 billion in cash and Teva shares valued at $6.75 billion, giving it a 10% stake in Teva).

But it’s not done. According to an interview with the Financial Times, the CEO, Brent Saunders, is eager to sign another mega deal with the proceeds from the sale mentioned above. Allergan can then be put on the list of serial deal makers.

On the other side of the table, Teva is about to join the club of the biggest pharmaceutical companies. According to a Business Insider UK article, “Allergan’s generic business is generally seen as a better fit than Teva’s previous target Mylan because it will improve Teva’s distribution channels and because Allergan is strong in so-called biosimilar drugs.”

In the generics market, Teva will stay one step ahead of Novartis Sandoz division (estimated proforma 2014 sales of USD 15.7 billion for Teva-Allergan vs. USD 8.5 billion for Novartis Sandoz division).

In this context, Teva will probably drop its pursuit of rival Mylan, which in turn will be able to focus on buying Perrigo.

Additional links:

Allergan signals appetite for new mega deal after $41bn disposal – Financial Times (Subscription required)

A $40.5 billion deal with Allergan will make Teva one of the biggest drug companies on the planet – Business Insider

Teva to Buy Allergan Generics for $40.5 Billion – WSJ

The Last-Minute Phone Call That Spurred Teva-Allergan Deal – Bloomberg

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Medtronic – The Digital Pancreas – The Future of Diabetes Management? – Fierce Medical Devices

pancreas

A truly interesting article of the transformation of Medtronic Diabetes business

2015 could be a year to remember as the start of a new era in improved diabetes management thank to digital tools.

Diabetes management at Medtronic & deals history

It started several years ago but back in May 2001, a transforming event took place: Medtronic bought Minimed as well as an affiliated company for USD 3.8 billion. Looking only at Minimed, Medtronic paid USD 3.28 billion for USD 400 million in sales (8.2x 2001 sales). Despite its price, quoted as high by some investors and analysts at that time, the deal rationale was pretty compelling as it allowed Medtronic to enter the diabetes management arena. MiniMed offered a beachhead into the field of technological management of diabetes, one of the fastest-growing chronic diseases in the world and one that affects an estimated several millions of people. The devices produced by MiniMed help patients manage their insulin needs and monitor glucose levels.

Since 2001, several deals and partnerships paved the way up to where Medtronic is today. After having a look at my deals database, I can say that some of them clearly stand out:

November 2004: agreement with Novo Nordisk on prefilled insulin cartridges;

– August 2007: co-promotion & co-marketing with Lifescan and Bayer of blood glucose meters (in USA together with Lifescan and outside USA with Bayer extended in 2011). These devices had wireless data transmission to insulin pums;

May 2009: strategic marketing collaboration with Eli Lilly on patient education and disease management;

June 2009: acquisition of PreciSense, a medical device company developing CGM (continuous glucose monitoring) technology. A step forward for “closed loop” systems dedicated to insulin delivery;

January 2013: research collaboration with GI Dynamics on EndoBarrier;

August 2013: acquisition of Cardiocom, a developer and provider of integrated telehealth and patient services for the management of chronic diseases;

June 2014: global strategic alliance with Sanofi, aimed at improving patient experience and outcomes for people with diabetes around the world. The priority is the development of drug-device combinations and delivery of care management services to improve adherence as well as simplify insulin treatment.

Medtronic has built its Diabetes franchise over the last several years and is still fully committed to be the leader in this field. This pledge could lead to the achievement of the digital pancreas, a fully autonomous device (closed loop system) monitoring blood glucose continuously and adjusting insulin doses as perfectly as the biological pancreas without human interaction. Some researchers already have prototypes, studies are ongoing, universities and hospitals are teaming up. The field is really at its boiling point!

Deals and partnerships in 2015

In this FierceMedicalDevices article, we can see Medtronic advancing its franchise by investing with determination and dedication in new technologies.

Many partnerships have been signed in 2015: Diabeter (a diabetes clinic and research center dedicated to providing comprehensive and individualized care for children and young adults with diabetes), DreaMed (artificial pancreas technology for integration into future Medtronic insulin pumps). Beyond healthcare companies, Medtronic is also expanding its network into consumer electronics with Samsung (integration of mobile and wearable devices to improve disease management with an Android mobile app) and diabetes data with a startup called Glooko. It also partnered with IBM Watson Health for next-generation disease management solutions.

All these deals are clearly accelerating innovation at Medtronic but in a patient-centric fashion as in every deal we can see the benefits for them and the management of their disease. What could be the next step? A deal with Apple in order to nearly fully cover all the mobile OS in the world.

For my conclusion I will quote Medtronic CFO, Gary Ellis: “We’re focused on transforming our diabetes group from a market-leading pump and sensor company into a holistic diabetes management company focused on making a real difference in outcomes and costs,” summed up Medtronic CFO Gary Ellis on the most recent quarterly conference call.

 

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Mergers & Acquisitions: what are the current key trends for the pharmaceutical industry? – KP

Handshake2

2014 was spectacular and fascinating with a lot of deals… What’s next?

Tremendous amount of reports have been produced (some of them, a selection from the bests, are at the bottom of this post). Rumors are sometimes saying it’s the end on Monday, it’s just the beginning on Tuesday and sky is the limit on Wednesday…

Internet serendipity is great! Indeed, I came across a very interesting website offering free reports on the pharmaceutical industry: Kurmann Partners. Just have a look! They are M&A consultants for several industries (I do not work for or is paid by them).

They put online another useful tool which will be a good starting point to look at M&A multiples: a visualization tool offering several types of charts to monitor the M&A activity over the years from different standpoints and for private companies: Multiples. Below is an example of a chart you could find.

KP_RevenueMultiples_EBITDAmargins

2015 – What happened up to now and what’s ahead?

The trend seems here to stay as there is still a need to replenish pipelines and build a competitive advantage in specific therapeutic areas. I suppose that some domains will attract more buyers than others like immuno-oncology (a very hot topic today), antibiotics (as the governements are trying to incentivize companies). More generally, all therapies that could stand out from the crowd by being innovative (and not “me-too“-improved version of already existing drugs) will attract opportunity hunters.

 

Additional resources:

2015 Global life sciences Outlook – 2015 – Deloitte – Starting on page 8, you have a overview of the deals that happened in 2014 and some thoughts on what could happen next

Royalty Rates and Deal Making Survey – 2015 – IMS – This short report gives a very good overview of a large survey (that can be bought) realized by IMS on royalty rates and deals during the first months of 2015. Access it here: 2015_RoyaltyRateDealmakingSurveyOverview

Global M&A report – Pharma/Biotech 2015 – 2015 – IMAP

Firepower fireworks drive record M&A in 2014. What’s ahead for 2015? – 2015 – Ernst & Young

HBM Pharma/Biotech M&A Report 2014 – 2015 – HBM Bioventures – It is a very interesting overview with a perfect coverage of the topic, from an global overview to some detailled analysis of the deals done by public as well as private companies. It is a MUST-HAVE.

 

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Mylan buying Perrigo – Broadening Product Range & Extending Geographic Reach – Reuters

The deal in 4 points

MoneyUSD 29 billion in cash and stock spent.

25% premium over the last closing price.

USD 15.3 billion of pro-forma combined sales in 2014.

Would be the biggest health care deal year to date, ahead of AbbVie-Pharmacyclics (USD 21bn) and Pfizer-Hospira (USD 16.7bn).

Reuters Article

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Big biopharma deals we might see in 2015 – BioPharmaDive

Merger mania is alive and well – what could we expect in the coming months?

HandshakeA very interesting article from BioPharmaDive is analyzing the last trends in M&A. 2014 as well as the start of the year have been exciting as we mentioned in a dedicated post. For more on what happened in 2014, have a look at the Evaluate Pharma 2014 Year in Review below.

Some speculation and trends have been deduced from the past by the editor of BPD. He thinks that there is more to come and here what he’s anticipating:

1. Merck & Jazz Pharma backed by a very nice business fit with complementary franchises and products.

2. Shire & BioMarin would be the perfect combo between rare diseases and orphan drugs.

3. Gilead & Seattle Genetics to make a great use of the mountain of cash accumulated by Gilead.

4. Pfizer & Celgene to help Pfizer grab some market shares in oncology.

BioPharmaDive Article

EvaluatePharma2014inReview

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Q1 2015 – An exciting quarter for the pharma industry – Financial Times

Q12015HealthcareDeals

Is bigger better?

During the 1st quarter of 2015, the total deal value in the healthcare industry walked through the ceiling of USD 90 billion… Patent expiries looming on the horizon were one of the main rationale behind this M&A fever.

Some of the Q1 2015 biggest deals:

  • AbbVie & Pharmacyclics – USD 21 billion
  • Pfizer & Hospira – USD 16.8 billion
  • Valean & Salix Pharmaceuticals – USD 15.8 billion
  • UnitedHealth & Catamaran – USD 12.8 billion

Securing valuable and strategic assets seemed crucial in these last moves. But the prices paid were quite high.

FT Article    Bloomberg Article

AbbVie boosts cancer drug pipeline with $21 billion Pharmacyclics deal – Reuters

AbbVie is going for the big home run with the Pharmacyclics deal

jumpAbbVie is to buy Pharmacyclics for about $21 billion, giving it access to what is expected to be one of the world’s top-selling cancer drugs and expanding its reach in the profitable oncology field.

The deal — the latest example of a big drugmaker swooping on a biotech firm to refill its medicine pipeline — confounds expectations that Pharmacyclics would sell out to Johnson & Johnson.

More on the deal

GSK and Novartis complete deals to reshape both drugmakers – Reuters

GlaxoSmithKline and Novartis completed their asset swaps

PuzzleGlaxoSmithKline and Novartis said they had completed a series of asset swaps worth more than $20 billion that will reshape both drugmakers. GSK is forming a consumer health joint venture with Novartis, while at the same time buying the Swiss company’s vaccines business and divesting its cancer drugs portfolio to Novartis. The two companies originally announced the transactions in April 2014 to bolster their best businesses and exit weaker ones as the drugs industry contends with healthcare spending cuts and increased generic competition. More details