2011 Pharma Biotech Industry Global Report

An IMAP HEALTHCARE Report Pharmaceuticals & Biotech Industry Global Report — 2011 www.imap.com Through a proprietary mix of global reach, local market knowledge, superior client service, exceptional market analytics, a customized-team approach, and familiarity with the biotechnology and pharmaceutical industries, IMAP has developed a formula for ensuring your next M&A project succeeds. Our formula for cross-border M&A is so effective we’d patent it if we could. EVERY BUSINESS DAY, SOMEWHERE IN THE WORLD, AN IMAP ADVISOR IS CLOSING AN M&A TRANSACTION. IMAP’s Pharma & Biotech Industry Global Report 2011: Page 1 P h a r m a & B i o t e c h i n d u s t r y G l o B a l r e P o r t — 2 0 1 1 Contents Pharma on acquisition spree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Global Pharma Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2011 — Transformation proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Post 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Patent cliff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Patent cliff’s impact depends on many factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Price cuts and reimbursement restrictions continue to limit growth . . . . . . . . . . . . . . . . . . . . . . . . 5 Growing regulatory pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Move to emerging markets — a major growth driver for the pharma industry . . . . . . . . . . . . 6 Tier 1: China — in a league of its own . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Tier 2: Brazil, Russia, and India — hot on the heels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Tier 3: Fast followers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The epic problem: Low productivity of R&D pipelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Medical differentiation is a must. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Flexible organizations and rapid process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Oncology — a special case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Biosimilars — an emerging opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Snap shots of Big Pharma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Future Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Statistical reference (Appendices) Appendix A: The pharma and biotech industry structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-i Appendix B: Summary of M&A transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-i Appendix C: Pharmaceutical market overview and trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-i Appendix D: Generic market overview and trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-i An IMAP HEALTHCARE Report IMAP, Inc. is a Delaware corporation. Its regional firms are independently operating in various jurisdictions under a variety of legal forms of organization. References to IMAP transactions, offices, locations and other similar associations should not imply any form of IMAP ownership or agency over the local firms or cause any liability between the local firms and IMAP whatsoever. IMAP’s Pharma & Biotech Industry Global Report — 2011: Page 2 2010 vs. 2009 2009 2010 Transaction value (USD billion) 161.2 51.6 Top 5 transactions 78.4% 38.3% Top 5 Countries in 2010 No. of transactions Value (USD mn) United States 114 25.6 Germany 18 5.4 India 48 4.9 China 105 3.4 Brazil 13 1.9 Source: Thomson M&A Database, IMAP M&A Activities at a Glance Pharma on acquisition spree The mega-merger boom of 2009 may have cooled, but pharma and biotech companies’ appetite for M&A barely dimmed last year. The pharma sector saw 548 deals valued at $51.5 billion USD in 2010, representing a sharp decline of 68 percent ($161.2 billion USD during the previous period with 563 deals). Dollar volume in this period included one major deal (Teva Pharma/Ratiopharm), which represented $4.9 billion USD or nearly 9.6 percent of the total. During the previous period, the largest deal was the acquisition of Wyeth by Pfizer for $67.9 billion USD. In terms of transaction value, the United States and Europe led the way through mega deals, while China leads in micro-size deals of less than $20 million USD. Global pharma players continue to penetrate the burgeoning emerging markets by acquisition of domestic generics and manufacturing companies, which accounted for nearly 50 percent of M&A targets for deals made during 2008 to 2010 in the emerging markets (compared to 21 percent of targets in North America, Europe, Australia and Japan) . The year 2010 also brought again a plethora of licensing deals as Big Pharma aims to secure future growth. In addition, these players try to get access to new niche markets through acquisitions. Strategic mid-market buys, characterized as deals of $100 million to $500 million USD, are likely to remain one area of high intensity. Novartis acquired Aires Pharmaceuticals, whose focus is on cystic fibrosis and pneumonia, for $250 million USD. Over-the-counter (OTC) pharmaceuticals in emerging markets is another focal area. For example, sanofi-aventis boosted its OTC presence in China with the $520 million USD acquisition of BMP Sunstone in 2010, adding brands in the Chinese consumer healthcare market, including vitamin and mineral supplements and cough and cold treatments. Consolidation and alliances will continue to transform the market as companies adapt to changing conditions within the industry. Pharma companies will turn to M&A to consolidate their core businesses, and to get access to new areas of growth. With continued low interest rates and lots of cash on hand of the Big Players, M&A and licensing activity is bound to grow further in the future. Hence, a significant growth in in-licensing activities and collaborations for the development of pipeline candidates will be seen. Instead of developing a product from scratch, which involves a lot of funds, pharma companies will increasingly shop for mid-to late-stage pipeline candidates. Accordingly, 91 percent of industry executives believe pharma-biotech mergers will increase in the next 10 years, and 69 percent also believe there will likely be increased consolidation between companies within the biotech sector1. Therapeutic areas such as oncology, central nervous system disorders, diabetes and immunology/inflammation could see a lot of licensing activity. 1 Survey conducted by Business Insights US Europe Japan China Latin America RoW Total Undisclosed Deals 47 79 16 26 7 64 239 Up to 20 Million USD 21 24 6 58 2 55 166 20 to 50 Million USD 13 10 2 13 5 17 60 50 to 100 Million USD 11 7 2 3 2 4 29 100 to 250 Million USD 10 3 0 2 1 4 20 250 to 500 Million USD 4 5 1 2 1 0 13 Above 500 Million USD 8 6 0 1 1 5 21 Total 114 134 27 105 19 149 548 Source: Thomson M&A Database, IMAP IMAP’s Pharma & Biotech Industry Global Report 2011: Page 3 Global Pharma Sector 2011 – Transformation proceeds Total World Market Growth Rate Source: IMS Health, IMAP Global Pharmaceutical Market Estimate U S D B ill io n CAGR: 6.5% 781 808 875 920 990 1,060 1,140 1,200 1,000 800 600 400 200 0 2014E2013E2012E2011E2010E20092008 10% 8% 6% 4% 2% 1% 0% 9% 7% 5% 3% The global pharmaceutical market in 2010 is expected to grow by 8.3 percent and will reach a level of $875 billion USD, driven by stronger near-term growth in the US market1. In 2009, the pharmaceutical market grew only 3.5 percent with market size of $808 billion USD. At present, the global pharmaceutical market is dominated by the US, which accounts for about 28 percent of global sales in 2009, followed by the EU, accounting for nearly 15 percent, and Japan for 12 percent. Together, these three markets represent nearly 55 percent of the global market. While the performance of the global pharmaceutical market is more positive in 2010 than in 2009, the fundamental dynamics of the innovation cycle and funding pressures will result in mid- single-digit growth over the next five years. Notwithstanding the improved prospects in the US market, the pressure on pharma companies to adapt to the longer-term marketplace trends and evolving patient needs remains undiminished. Due to many patent expirations, the generic drug industry has experienced great growth in the past few years. The global market for generic drugs was worth $107.8 billion USD in 2009 and is projected to reach $129.3 billion USD by 2014 with a CAGR of 9 percent. Rising cost pressure on healthcare has resulted in an increase in generic pharmaceutical usage — generic drugs cost 30 to 80 percent less than their original equivalents. 1 Intercontinental Marketing Services (IMS) Health Although patent expirations and limits on drug spending can hamper growth of drug sales in developed countries, global pharmaceutical sales are nonetheless expected to grow 5–7 percent in 2011 and the market is to reach $880 billion USD in 2011. Much of the rise will come from the 17 ‘pharmerging’ markets2, where sales are forecast to grow at 15–17 percent to $170–180 billion USD, boosted by greater government spending on healthcare. A great majority of the expansion is driven by explosive growth in China, the world’s third-largest market for pharmaceutical sales. A great slowdown will be seen in the five major European markets (France, Germany, Italy, Spain and the UK), along with Canada, with minimal growth of 1–3 percent. The US will continue to remain the single largest pharmaceutical market, with sales of $320–330 billion USD, up 3–5 percent. Drugs with sales of more than $30 billion USD are expected to face generic competition in 2011 with Lipitor accounting for $11 billion USD. Government will continue to try to reduce drug costs. Illustrative are the sizable cuts in the price of generics in comparison to their original equivalents in Spain and in Canada. There will also be new price negotiations in Germany and cost cuts for original products in Greece and Turkey. It will also be a crucial year for understanding how healthcare reform efforts in prominent markets develop and shape up amid the foreseen macroeconomic rebound. For pharmaceutical manufacturers, an incessant focus on attaining distinct value to patients and health systems will be important to managing this dynamic market. 2 Emerging markets targeted by pharmaceutical companies (Pharm(aceutical) + (e) merging). List of Pharmerging countries includes Argentina, Brazil, China, Egypt, India, Indonesia, Mexico, Pakistan, Poland, Romania, Russia, South Africa, Thailand, Turkey, Ukraine, Venezuela and Vietnam IMAP’s Pharma & Biotech Industry Global Report — 2011: Page 4 In the long run, the global pharmaceutical market is expected to grow at a 5-8 percent CAGR through 2014, taking into account the impact of the changing mix of innovative and mature products and the rising healthcare access in emerging markets, and on the other hand, the price pressure by regulators in developed countries. Consequently, the global pharmaceutical market is expected to expand to $1.1 trillion USD by 2014. The pharmerging countries are expected to grow by 13-16 percent over the next five years. China's pharmaceutical market is expected to continue to grow at a pace of more than 20 percent annually. During the next five years, markets will be impacted by numerous payer actions, including the imposition of price cuts on existing drugs, the raising of standards required to achieve reimbursement of innovative therapies, and the use of economic incentives for prescribers and pharmacists to drive a shift to generic equivalents. Evidence of the value that medicines bring to healthcare systems will be required to achieve access and funding in both developed and emerging markets. Patent cliff Patent cliff describes what happens to the sales of an original drug when its protection (patent, regulatory, etc.) ceases: A dramatic drop in sales both due to declining unit numbers, but also a price erosion of up to 70 percent within months. Patent cliff will fundamentally impact individual pharma companies in the mid-term future: During the next five-year period (2010- 2014), the revenues of drugs having patents that will expire are about $89.5 billion USD1, the majority of them small molecules. (In the five-year period from 2005-2009, this value was $90.5 billion USD). In 2011 the world’s biggest selling drug, Lipitor, will go off- protection. Other drugs that lose protection in 2011 are Plavix, which is used to inhibit blood clots; Actos, which treats diabetes; and Seroquel and Zyprexa, two drugs that treat schizophrenia and bipolar disorder. Revenues hammered by patent cliffs can only partially be compensated by newly launched products, e.g. in indications such as osteoporosis, respiratory illnesses, thrombosis, multiple sclerosis and cancer. Patent cliffs' impact depends on many factors The speed and degree of sales erosion when falling down patent cliff are not equal across countries, prescription setting, and therapy area and formulation type. On average, small molecule originals in the US witnessed the most severe sales erosion on patent expiry. In some countries, off-protection products don’t even get generic competition, particularly if the original’s sales are relatively small. After the US, sales erosion due to patent cliff was next highest in the UK, Germany and France, and was the lowest in Australia, Italy, Russia, Spain and Japan. Originals did not see massive drops in sales upon patent expiry in China, since they often were exposed to generic competition from the outset. 1 IMS Health Midas Post 2011... IMAP’s Pharma & Biotech Industry Global Report 2011: Page 5 Price cuts and reimbursement restrictions continue to limit growth Governments around the world are grappling to arrive at solutions for health account deficits. Political pressures have increased during the past economic crisis. Actions mainly address treatments for nonlethal indications with large patient numbers, decreasing profit margins. Hence, pharma companies have adapted their strategies: Many pharma companies have altered their drug portfolios from primary care driven blockbusters towards specialties such as oncology, immunology and inflammation, where the medical need is so high that prices are more easily accepted by the regulators. Price cuts and reimbursement restrictions present in both developed and emerging markets Source: Datamonitor, IMAP France: Introduction of a low (10-20%) reimbursement group Brazil: Cost containment pressures may result in cuts in the drugs' budget Spain: Use of price cuts and reference groups to reduce the drugs' bill India: Potential expansion of drug price controls from 74 to all 354 drugs on the essential medicines list Germany: Introduction of a cost-effectiveness analysis impacting reim- bursement decisions Russia: Stricter drug price regulation China: 12% drug price cut US: Expanded support for comparative effectiveness research, Increased Medicaid Part D donut hole discounts if the reform bills are passed Japan: 5.75% across the board price cut, Changes to the average over- seas price calculation aimed at reducing launch prices UK: Continued use of risk-sharing schemes (effective drug discounting) for expensive drugs • Flexible drug pricing to maximize overall returns • Increased price elasticity with focus on volume • Lower prices for emerging markets • Move away from large physician-targeting sales force to payer- and patient- centric sales model • Drug portfolios to match unmet needs • Disruptive rather than incremental innovation • Demonstrate monetary value of a treatment path- way in addition to efficacy of an individual drug • Offer disease manage- ment solutions • Downward price pressures • Difficult to obtain desired reimbursement Cost-containment focuses on price cuts and reimbursement restrictions Growing regulatory pressures The FDA Amendments Act of 2007 has forced the FDA to increase standards for approvals of new drugs, introducing mandatory risk evaluation and mitigation strategies (REMS). This is one example of a long-term, global trend of ever higher hurdles for new drugs to be approved, with the corresponding high failure rates and costs associated. Ever tougher demands on pharmacovigilance systems increase the regulatory burden on pharma companies’ internal systems once the new drugs have been granted marketing authorization. Pharma companies are also under the lens for their marketing practices, forcing them to adapt their promotional models. Although the greater cooperation between the regulators in different markets will ultimately be advantageous for the pharma industry as a whole due to streamlining development and approval requirements and reducing costs, in the near term it could cause spread of approval restrictions around markets. On the other hand, protection and enforcement of IP rights remains a difficult issue in many emerging markets, with counterfeit and first-copy products rife. For example, India’s patent system fails to reach the required standard, with the recent rejection of the patent for Bayer’s Nexavar (sorafenib) as one notable example. Unless such issues are sorted out, pharma companies must adapt their drug portfolios and commercialization strategies to the particular local market conditions. List of Pharmerging Countries Tiers Countries 2009 GDP based on PPP valuation (Trillion USD) Incremental Pharma Market Growth from 2009-13 (Billion USD) Tier 1 1: China 9 40B+ Tier 2 2: Brazil 3: Russia 4: India 2-4 5-15B Tier 3 5: Venezuela 6: Poland 7: Argentina 8: Turkey 9: Mexico 10: Vietnam 11: S. Africa 12: Thailand 13: Indonesia 14: R