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Key M&A Deals2018 - 2019
AvexisApr, 2017
AblynxJun, 2018
Foundation MedicineJun, 2018
Flatiron Feb, 2018
BioverativeJan, 2018
Juno Therapeutics Jan, 2018
Spark Therapeutics
Feb, 2019
CelgeneJan, 2019
Loxo OncologyJan, 2019
TesaroDec, 2018
ShireNov, 2018
$4.8 billion
$62 billion
$5 billion
$8 billion
$74 billion
$4.8 billion$9 billion
$11.6 billion
$1.9 billion
$8.7 billion
$2.4 billion
In 2018, rare disease-focused acquisitions represented:
To enter into high growth cell therapy
Sanofi ’s biggest acquisition in seven years, aimed at bolstering its rare disease portfolio
To widen its control in personalised medication
Part of its foray into gene and cell therapy
To boost its R&D in the fi eld of nanobodies and rare blood disorders
To strengthen genomic profi ling franchise
To survive the slowing domestic market
To reinvigorate its oncology pipeline,
which was otherwise weak
To expand its oncology pipeline
To become an oncology powerhouse
Moved further into gene therapy
Notableexamples of AI
adoption in R&D
In October 2018, Gilead was reported to enter into a deal with theNHS, offering undisclosed discounts on its list price1 of $385,000 (£300,000) on its cell therapy drug Yescarta to gain market access
Subsequently, pharmaceutical companies engaging in confi dential deals are offering discounts to the NHS for access
In May 2018, after a cost appraisal by NICE on MS therapies, Teva, Biogen and Merck Serono agreed to reduce the prices of their products
Global pharma sector outlookExploring 6 key themes impacting the sector this year
Theme 1 – Rising pricing pressure
Theme 2 – Innovative contracting approaches
Theme 3 – Cost containment
Theme 4 – Decreasing R&D productivity
Theme 5 – Steps to improve R&D outcomes
Theme 6 – Continued relevance of M&As
US Europe Other innovative tactics
Aggressive payer negotiations and discounts, and generic and biosimilar competition, are hindering pharma companies' revenue growth and profi tability
Continued efforts to reduce costs
Rising development costs coupled with low probability of clinical success warrant changes to current R&D strategies
Outsourcing and adoption of technology to expedite R&D, improve outcomesand reduce costs
Deal making slowed down in 2018, even though the Takeda-Shire deal pushed the transaction value level up. With over $80 billion in deals already announced in 2019, we could see the M&A fever coming back
Combined deal value ($ billion)
Deal count
2 approaches to improve R&D
outcomes
Projected returns on R&D investments for top 12 biopharma companies, 2010–2018 (%)
Development cost for 1 commercialised asset, top 12 biopharma companies, 2010–2018
Projected peak sales per asset, top 12 biopharma companies, 2010–2018
Pricing pressure, demand for R&D investments and an adverse reimbursement landscape, have restricted pharma companies’ growth and profi ts, leading them to focus on cost containment to maintain profi tability
Cost containment measures
Outcome-based pricing approaches likely to gain more traction in Europe compared to the US
Under pressure from the US government, many players including Pfi zer, Novartis, Allergan, AstraZeneca and Amgenfroze prices of prescription drugs in 2018
The US government has taken a raft of measures including focusing on generic and biosimilar drug approvals and proposing aggressive negotiations for Medicare purchases
According to a Wells Fargo report, the average rebates offered by pharma companies to payers has increased from 28% in 2012 to 41% in 2018, and are expected to go up further in 2019
In 2018, generic drug manufacturers suffered margin pressure due to strong competition driven by the high pace of USFDA’s ANDA approvals and roughly 90% consolidation in drug distribution
In 2018, NICE, the UK body responsible for providing guidance on health and social care, aggressively imposed its costeffectiveness norms for innovative drugs
1. All currency conversions are at £1 = $1.28344 as of January 14, 20192. All currency conversions are at €1 = $1.71915 as of January 14, 2019
Source: PharmaPhorum, Chain Drug Review, FiercePharma, PMLiVE, Capital.fr, Simon Kucher & Partners,Ouest France, Service-Public.fr, IQVIA, IndiaInfoline, Forbes, FiercePharma - Insurers, BioSpectrum India, Economic Times
1. All currency conversions are at €1 = $1.71915 as of January 14, 2019 2. All currency conversions are at £1 = $1.28344 as of January 14, 20193. Estimated cost savings
In the US, the public sector payers are unlikely to use outcome-based contracts in the near term, given the government’s focus on generics and biosimilars as price containment tools; therefore, private sector payers are more likely to adopt these pricing models
In 2018, Humana had roughly 15 pay-for-performance deals covering 20 prescription drugs
Merck has 2 publicly disclosed dealswith Cigna for its diabetes drugs Januvia and Janumet, linking rebates to the drugs’ performance
Similarly, Eli Lilly has an arrangement with Harvard Pilgrim Healthcare linking price rebates for itsdrug Trulicity’s performance in diabetes patients
Adoption of outcome-based models is expected to increase in Europe given the publicly funded nature of single payer systems prominent in the region
In Italy, outcome-based pricing has been frequently used by payers to reduce costs
Further, In February 2018, a number of pharma companies entered into a 3-year agreement with non-profi t outcomes measurement body ICHOM, to develop a standardised framework for evaluating health outcomes and push for further adoption of the approach
In 2018, Gilead and AbbVie partnered with the Government of Louisiana to assess a subscription-based pricing model comprising fi xed annual price per patient for unlimited access to their hepatitis C drugs
$
Rationalisation of manufacturing footprint
Outsourcing of support functions
$600 million annual reduction in R&D costs
Synergies from Shire merger
Reorganisation of business units
Rationalisation of manufacturing and R&D operations
Offshoring business services
Supply chain optimisation
Supply chain optimisation
Reductions in administrative costs
Rumoured to have planned to slash budget by 20%
Cancelled 20% of its R&D projects
Offshoring business services to low-cost destinations
Adoption of new technologies in the supply chain
2016–2018 $1.7 billion1
2018–20203 $1.4 billion
2018–202132018 $510 million2/yearUnspecifi ed
2018–20223 $600–800 million1/year
The Wall Street JournalIn-Pharma Technologist, Bloomberg Quint, GSK Press Release,Reuters,Proactive Investors-UK,Source: Pharmaphorum,
Source:: Centre for Health Solutions; Deloitte; Biostatistics Journal
To mitigate rising pricing pressures, pharmaceutical companies are increasingly adopting outcome-based contracting approaches; these include allowing rebates on pricing and partial reimbursements, based on any given drug’s performance in the real-world setting
"The commercial market is already reacting to high specialty drug prices by restricting access. Payers want to reduce the total cost of care.”
– Amy Hunckler, Managing Director, Healthcare and Life Sciences, KPMG (March 2018)
Source: FiercePharma; Forbes; The Government of Louisiana, Pharmaceutical Commerce; EyeforPharma; Politico; ScienceBusiness.net
Key measures being adopted
$816million
million
CAGR7.8%
2010
2010 2011 2012 2013 2014 2015 2016 2017 2018
2010 2018
High number of blockbuster assets
High number of small value assets
2018
$407
$1.2 $2.2
2010 2018
billion billion
Estimate
EstimateEstimate
Estimate
10.1%7.6% 7.3% 4.8% 5.5% 4.2% 4.2% 3.7%
1.9%
Key takeaway
Currently, the large players in the pharmaceutical industry are witnessing diminishing returns on investments in innovative therapies, leading them to adopt new tactics to contain costs and improve R&D output
Outsourcing of clinical development activities – including site identifi cation, recruitment, data management, analytical testing and site payments – to clinical research organisations (CROs) is commonly being carried out by big pharma companies, resulting in expedited and cost effective drug development
Adoption of technologyOutsourcing
Licensed drug discovery platform
Drug discovery collaboration
Drug discovery collaboration
Drug discovery collaboration
Drug discovery collaboration
2018
2016
2015
2018
2017
+
+
+
+
+
Source:: Company Websites; Deloitte; Contract Pharma
Early benefi t assessment of drugs by Germany’s health technology assessment body, coupled withnegotiations with pharmaceutical companies,have resulted in price reductions for many drugs
Rising biosimilar competition is being seen
2012
28%
41%
Pricing freeze
Norms
Pricereduction Negotiations
Negotiations Rebates Margins
2018
The French government plans to save more than $1.15 billion2
(€1 billion) by cutting drug prices and tightening negotiations with pharma companies in 2019
CEPS, the pharma pricing negotiations authority of France, is alsoaggressively pushing price cuts
In 2018, post CEPS negotiations, the prices of Gilead’s hepatitis Ctreatments saw reductions of 20%; the prices of AbbVie’sMaviret were slashed by 33%
Automation of routine tasks such as quality checking of clinical trial data, fi ling documents and processing adverse event reports
Machine Learning to analyse Electronic Health Record (EHR) data (images, scans, etc.) to process and develop real-world evidence
Artifi cial Intelligence (AI) to expedite drug discovery processes as well as analyse the real-time stream of data collected from participants using IoT devices during clinical trials
Internet of Things (IoT) devices in clinical trials to improve participant adherence and gather relevant data; Novartis and Pfi zer have been actively investing in IoT devices to be used during clinical trials
Pharma companies
Subscription-based pricing model
agreement3-year
+
To learn more about how we can support your organisation to understand best practices surrounding drug development, manufacturing and commercialisation; facilitate spend reduction across the business; and get critical industry-related updates customised to your needs, please contact us at [email protected]
16% of the total volume of M&As worth more than $1 billion
and nearly half of the value
Intelligence. Accelerated
thesmartcube.com
However, due to the requirement of real-world data and complex models defi ning value, outcome-based deals are more likely to be used for costly innovative drugs such as Kymriah, a CAR-T therapy from Novartis, priced at $475,000 per treatment in the US
US
UK
Germany France
as a key factor in bringing the prices of biologics down. A price moratorium on generic drugs until 2022 will limit growth of generic drug manufacturers
Deal history – by volume and value
2009 2010 20122011 2013 2014 2015 2016 2017 2018
183
151.5
108.5
57.1 48.3
79.4
219.3188.9
107.279.0
136.5
208218
206 211229
290
205
183173
Key motivations for M&A
Recover from genericisation - $251 billion1 worth of sales are estimated to be under pressure during 2018-2024
Withstand increasing challenges on operating/regulatory/political fronts
Replenish R&D labs
Scale up existing capabilities
Add high-growth/innovative/differentiating capabilities
Source:: EvaluatePharma
1. According to EvaluatePharma
