Sectoral Asset Management - Healthcare Market Review and Outlook
Tax considerations have prompted many of the announced, rumored, or otherwise attempted (sometimes failed) deals. In an effort to put offshore cash reserves to use and to lower their overall tax rates, several US based corporations have been targeting non-US companies. By itself, tax optimization would seem to be a pathetic admission of lack of vision, if not strategic failure. Fortunately, and rather reassuringly, Pfizer was sent packing after its attempted USD100bn bid for AstraZeneca. Other deals, however, have more merit, such as Medtronic’s USD46bn acquisition of Covidien. In this case, the purchase creates a global leader with complementary product lines.
Main area of acquisition: Pharma
Overall, the main area of acquisition was specialty pharma. The rationales ranged from geographic expansion (eg, Abbott’s acquisition of Chilean drugmaker CFR) to business/technology complementarity (eg Hikma’s purchase of US-based injectables player Bedford Labs from Boehringer Ingelheim or Mallinckrodt’s addition of Questcor for USD5.6bn). Potential restructuring/cost synergies prompted other deals, including Sun Pharma’s takeover of Ranbaxy and Valeant’s attempt to buy Allergan. The latter has sparked a debate about the role of specialty pharmaceutical companies. Should these concerns solely serve as marketing machines with slashed R&D budgets (the Valeant model), or should they pursue the traditional model and continue to invest a sizeable, and potentially excessive, portion of their revenue in R&D?
Finally, other deals, involving biotech companies as well, were straightforward product acquisitions, among them the USD3.85bn Merck bid for Idenix and Forest Labs’ more modest USD1.1bn acquisition of Furiex. Actual M&A was complemented by more or less well-founded rumors surrounding NPS Pharma (a potential acquisition by Shire) and Shire itself (by AbbVie). Corporate restructurings and asset swaps also helped drive prices higher. The most noteworthy deals clearly were the Novartis/Glaxo transactions, which included Novartis’ acquisition of Glaxo’s oncology assets, the sale of Novartis’ vaccine business to Glaxo, and the formation of a JV around their mutual OTC businesses. In addition, Novartis divested its animal health business to Lilly.
