by Helen Collis
LONDON, Feb 12 (APM) - Pharma is likely to see further refocusing activity involving spin-offs and flotations in 2015, plus potentially the first significant deals in the biosimilars sector, according to a senior pharma analyst.
Speculation around the break up of big companies, such as Pfizer and GlaxoSmithKline, could be just that - speculation, most likely by short-term investors. But the idea might not be so far fetched given the disparate activities at companies like Pfizer, said Ana Nicholls, managing editor of the Economist Intelligence Unit’s Industry Briefing, speaking to APM in a telephone interview on Wednesday.
But one thing is certain, there is plenty of activity in pharma mergers and acquisitions (M&A): “It’s interesting how it has been swinging from incredibly pessimistic 18 months ago to incredibly buoyant today." She said this positive shift seemed "out of kilter" with the underlying pharma business, where companies are facing patent cliffs and tough markets environments, all impacting their balance sheets.
Among the big announcements in recent months are Pfizer buying Hospira for $17 billion, Actavis taking over Allergan for $66 billion and Shire acquiring NPS for $5.2 billion. Companies have also been shedding excess businesses that do not fit perfectly within their strategy: Actavis is selling its respiratory business to AstraZeneca and its acne brand Doryx to Mayne Pharma.
Floating parts of a large group is also gaining pace, with GSK saying recently this was an option.(APMMA 41140). It is already planning a stock market listing in 2016, or possibly sooner, of part of its stake in the ViiV HIV joint venture.
Reckitt Benckiser floated its pharma division as Indivior at the end of 2014 and Novo Nordisk has just announced the planned flotation of its IT division.
“The pharma industry has been going in so many directions at once so the deals fall within lots of different strategies. But overall there’s obviously been a trend and a big pick-up in M&A in general,” Nicholls said.
An area of opportunity remains for pharma, however, in fine-tuning its activities, Nicholls said.
“There’s obviously been a greater focus within pharma companies. Internal restructuring of R&D divisions whereby they pick the most promising areas and drive funds into that, and a lot of deals fit within that pattern.
“This also explains a lot of spin-offs as they are getting rid of the bits of the business that don’t fit within that strategy,” a pattern she expects to see more of this year.
“I would expect the spin offs to carry on. I think there is quite a bit of needing to reshape portfolios still: partly because of the acquisitions from the last few years - quite a few companies have broad product lines,” she said, giving examples of Pfizer and Johnson & Johnson.
Meanwhile, speculation continues about whether some of the bigger players are gearing up for break up.
“The stock market often pushes for it because there are short-term gains in speculative investments,” Nicholls said. “But whether it’s a good long-term strategic move, I’m not so sure. AbbVie shows that. I’d hesitate to say that it doesn’t have strategic long-term gains beyond it, but I think managers would try to avoid that short-term pressure.”
She noted it was difficult to see any coherence in Pfizer’s activities. Concerning GSK, she pointed out the company has already done an “awful lot of restructuring,” but added, “there are always bits it can spin off”.
Among other areas of opportunity, Nicholls highlighted the biosimilars industry as one to watch.
“It’s difficult to predict the patterns but I did wonder if there would be activity now in the biosimilars segment as it’s finally now taken off, so perhaps we will see some reshifting there.”
She noted that while deals in emerging markets had quietened down in recent months, this might be an area where activity could resume.
However, she cautioned that the recent quality control issues at India’s Ranbaxy may have acted as a warning to other companies, cooling off chances of immediate activity in emerging markets, where the focus is on generics. Given the stringent quality control for biosimilars, it might be some time before biosimilar deals are seen there, she said.
Looking longer term, Nicholls said it appeared pharma continued to struggle with buying in expertise and innovation, noting that acquisitions often resulted in shorter-term gains.
“Interestingly, I haven’t seen so recently pharma buying in innovation wholesale. There have been quite a few small deals but there has been much less of it in my mind, not on the scale of Roche/Genentech.”
She said research suggests that although innovation can pay off (i.e. Gilead's Sovaldi for hepatitis C), “in general those acquisitions with innovative portfolios don’t equate to productivity but to short term gains with pipelines and portfolios - not necessarily a long term gain with the expertise and R&D capability.”
She said several companies “need to plug a few gaps in their pipelines” but said they tend to go down the licensing route with research collaborations when they need innovation.
“Overall, the research says that M&A in pharma has been very successful in comparison to other sectors where the consensus is that it destroys value. They find it has driven up the value of the companies that had bought the most.
“But it’s a question of whether it actually improves value in that area of R&D or not,” she said.
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