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This issue of Vital Signs, released on May 1, 2014, discusses the mega deals brewing in the pharma/biotech industry, Pfizer Inc’s Xalkori for non-small cell lung cancer, Novartis' halt on RNAi development efforts, the high-ranked Malaysian healthcare system, Roche's acquisition of IQuum's Liat Analyzer, and Bio-Rad's acquisition of GnuBio.
The Analyst’s Perspective by Steven Atkinson, Senior Industry Analyst, Life Sciences, North America; and Ranjith Gopinathan, Program Manager, Life Sciences, Europe
The pharmaceutical industry had witnessed a huge wave of mergers and acquisitions (M&As) in the past decade. Significant opportunities in biologics, especially high-growth therapeutics like oncology, autoimmune, central nervous system, etc., were the key impetuses for M&As in this industry.
We are now witnessing another surge in M&A activities, especially mega-M&As. Big pharma has historically fought with little success on various issues such as patent expiry of blockbuster molecules, regulatory hurdles, generic competition, under-utilization of resources, declining pipeline due to a low R&D productivity, price control by governments, and so on. Biopharmaceutical companies with strong biologics pipelines and low exposure to patent expiries are the most attractive acquisition targets.
Clearly, this time big pharma is seeking to strengthen their core business and divest the weak ones. In the case of Novartis buying GSK’s oncology portfolio, GSK had some recent approvals in oncology, including the approvals of its melanoma treatments Tafinlar and Mekinist. Cancer is one of the hottest fields in the drug business, but GSK needed the cash and was nowhere near the leaders in oncology (ranked 14th), giving GSK a chance to focus on its HIV, respiratory, vaccine, and consumer healthcare franchises. It must also be noted that GSK recently stopped its late-stage trial of MAGE-A3 for cancer therapy due to poor clinical trial data.
Novartis already has an array of cancer products, including Gleevec, Tasigna, Afinitor, Jakavi, and Signifor. With the addition of GSK’s oncology portfolio, cancer will be approximately 20% of Novartis’s portfolio, placing it right behind Roche.
In return for exiting its oncology business for $14.5 billion, GSK is acquiring Novartis’s vaccines business for approximately $7.1 billion plus royalties. In this acquisition, GSK is gaining four experimental vaccines from Novartis. Vaccines are a low-margin business and gaining scale is a critical requirement for GSK, while this is a non-priority segment for Novartis. Similarly, Novartis will be able to consolidate its already strong position in the highly lucrative oncology business. Hence, this is a win-win deal for both companies.
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