1. Consolidation in the Pharmaceutical Industry
Charles Baum, MD, MS, FACG
Vice President and Head US Medical Affairs
Takeda Pharmaceuticals USA

2. Bio-Pharma M&A History
30 y consolidation: ~110 companies >>> 30
Early – national consolidation (e.g., Glaxo, Welcome and Smith/Kline)
Later
– US market serves as nidus for small overseas companies
– Multinational consolidation
Largest companies command no more than 10% of market share
David Davidovic,

3. The History of Bio-Pharma M&A's: Pfizer
10 companies >>>>> 1
David Davidovic,

4. The History of Bio-Pharma M&A's: Sanofi
18 companies >>>>> 1
David Davidovic,

5. Historical Drivers of M&A
1980's (profit pressure)
Rising R+D costs
Passage of Waxman Hatch Act
Price competition from generics
1990's (declining profits)
LOE and end of blockbuster era
Rise of buyer-side market power (MCOs/PBMs)
2000's (single digit growth)
Shrinking Pipelines and Emergence of bio-techs
Overcapacity drives branded pharma M&A
Eliminating competition drives generics manufacturers M&A

6. Trend in 2015 is continuing with $221 billion worth of deals in first half of year
Pfizer has lead the way with >$219 B spent since 1994 and more possibly on the way with puchase of allergan, split

7. Overcapacity Drives M&As
M&As result in cost savings of 30-40% appeasing investors
Restructuring of Development and Commercial functions
Strategic shift from "me too" to novel specialty and orphan indications
New commercial models that leverage lower cost multi-channel/digital marketing
A shift from salesforce to value-based contracts with payers and health systems (IDNs)
Reduce research investment in favor of biotech partnerships and acquisitions.
Outsourcing
William Pursche: The McKinsey Quarterly, 1996

8. M&As Drive Global Footprint: Example -Takeda and Nycomed Merger
Low Interest Rates Favorable Exchange Rates

9. Medicaid Spending and Prescriptions for Albendazole (Amedra Pharma) and Mebendazole (Terminated by Teva)
High Cost Generic Drugs – Implications for patients and policymakers.
Alpern et al., NEJM 371;20:
In October 2010, GlaxoSmithKline sold U.S. marketing rights for albendazole to Amedra Pharmaceuticals. In October 2011, Teva Pharmaceuticals ceased to manufacture mebendazole. Data are from the Centers for Medicare and Medicaid Services.

11. Generics Manufacturers and Pricing
Turing Pharmaceuticals
- Martin Shkreli raises price of generic Daraprim (pyramethamine) from $ to $750 per tab – used to treat life threatening toxoplasmosis infections in HIV and cancer patients
Valeant has acquired 100 drugs and increased price of 56 drugs by average of 66%
The case of Isuprel and Nitropress (525% and 212% increases)
Ascension health has calculated cost impact for its system of ~$8 M.
PhRMA speaks out

12. Despite Several Bad Actors Generic Drug Prices Continue to Fall

13. Impact of Consolidation for Innovators
Financial
Reduction in competition drives bargaining power with payers
Tax implications
Efficiency
Greater expertise, deal making agility, regulatory success
Innovation
Focused pipelines – specialty pharma, oncology and orphan indications
Emphasis on Inorganic Growth
Increase in venture capital and fostering of biotech
Academic partnerships

14. FDA Approvals Indicate M&As Have Positive Effect on Pharmaceutical Innovation

15. Number of US Biotech Companies is Growing
27% Increase since 2012
Public Co.
Private Co.
Total

16. Looking Beyond M&A
Partnerships (basic and foundational research, co-promotion and co- development/commercialization arrangements)
Spinoffs and divestitures
Asset swap deals
ACA is helping drive alignment between payers, healthcare and pharmaceutical manufacturers
Moving "beyond the pill" is driving non-traditional business development