Divestment Strategies: Pharma is divesting in order to grow

Divestment Strategies: Pharma is divesting in order to grow

Introduction

Pharmaceutical companies are now divesting non-core assets such as medical devices and manufacturing plants in an effort to cut costs and focus on core strategies, primarily drug development. However, while some Pharma companies are narrowing their focus, targeting specific disease areas for future growth, others are taking a broader approach in an effort to spread risk and return on investment.

Scope

*Provides an introduction to divestment strategies in the current financial climate, including the drivers and resistors of divesting a company asset

*Offers recommendations on how the best divest to and how to optimize the divestment process

*Examines divesture deal trends and values during Q1 2006 to Q3 2008

*Provides case study analysis of the divesture deal trends during Q1 2006 to Q3 2008

Highlights

Most divesture decisions are made on a reactive basis when a company has no other choice, rather than proactively divesting a growing asset for a high price. Divesting non-core assets is essential to the survival of a biopharma in the current financial setting as it frees up much needed cash to buy assets that support core business needs.

Preparing a company for a divesture involves establishing a dedicated team to deal with the divesture both internally and externally, and requires specific expertise, in order to ease the transition of asset without reducing its value.

Medical devices are the leading type of asset divested in today's US healthcare market. It is increasingly sought after by healthcare companies due to its high value, with medical device sector estimated to be worth over $300 billion, and due to the lower risk involved compared to drug development.

Reasons to Purchase

*Understand why in the current financial climate pharma companies are divesting assets, and the drivers and resistors of divesting and acquiring.

*Insight in to how best to divest an asset, prepare a company for de-integration and set up transfer agreements to ensure a smooth asset transition.

*Provides in-depth analysis of the latest divesture deal trends, backed up by case study analysis and Datamonitor opinion.

CHAPTER 1 EXECUTIVE SUMMARY 4
Scope of the report 4
Key findings 5
Key definitions 6
Methodology 6
CHAPTER 2 INTRODUCTION TO DIVESTURE STRATEGIES 10
Changing pharmaceutical environment is driving Big Pharma to divest in order to grow 11
Proactive versus reactive divestment 13
Drivers and resisters of divesting in Pharma 15
Drivers for a company to divest an asset 16
Divest to raise capital 16
Divest to avoid legal battles 17
Divest to appease shareholders 17
Divest as part of a company's strategic restructuring 18
Case study: Bristol-Myers Squibb is divesting to acquire 19
Resistors for a company to divest an asset 20
Drivers and resistors of acquiring an asset 21
Drivers for the acquiring company 21
R&D driven acquisitions 21
Sales and marketing driven acquisitions 22
Acquisitions for geographic expansion 23
Resistors to acquiring a divesture 24
Acquisition talks breaking down 24
Country/cultural differences 25
Amalgamating previous competitors 25
Lack of support services such as IT 25
CHAPTER 3 HOW BEST TO DIVEST 26
The key to successful divesting 27
Key steps involved in implementing a successful divesture 27
Prepare the company - create an internal divestment team and work with external negotiators 29
Structure the deal - planning for de-integration requires top-to-toe alignment from the board of directors to project manager level 30
Maintain business continuity 31
Lack Patents and intellectual property 32
Carving out IT systems is complex and potentially expensive 32
Financial statements rarely reveal the true value of an asset: as it is almost impossible to separate the asset from the parent company 33
Setting up an internal buyer data room to prepare for due diligence queries can save time 34
An outright cash deal is the best outcome from a divesture but a company may have to compromise with a part-cash deal 34
Formation of an exit plan with a definite transition period is critical as most divesture separations over-run 35
Identify potential buyers 35
Clear communication - communicating the deal's benefits to employees is essential to maintaining company productivity 36
Holding off communicating the divesture until a deal is imminent can be a double-edged sword 37
Acquiring company at risk from last minute interest from competitors 39
CHAPTER 4 DIVESTURE TRENDS 40
Medical devices are the leading category of assets divested in today's healthcare market 41
Safety issues force Boston Scientific to divest its medical device cardiac unit 43
Increased interest in the biologics market is driving the acquisition of drug manufacturing sites 45
Patent expiries are driving Big Pharma to divest manufacturing units 45
Big Pharma divesting API units in an effort to cut costs 45
Consumer health divisions are notably not divesting 47
Pfizer and Johnson & Johnson's contrasting consumer health strategies 48
Medical device divesture deals on the increase in 2008 52
Consumer health and IT divesture deals generate the highest value 54
Majority of deal payments are still outright-cash payments 56
Divesture deals that involve 100% cash transactions will be more difficult for small-medium companies in the future due to the credit crunch 57
Pharma companies have divested multiple assets during 2006-08, as part of their restructuring activities 58
3M get outs of drug discovery to focus solely on its consumer healthcare business 59
CHAPTER 5 BIBLIOGRAPHY 61
Publications and online articles 61
Datamonitor resources 65
APPENDIX 66
List of Tables
Table 1: Industry sector classification 6
Table 2: Bristol-Myers Squibb merger and acquisition activity (Q3 2007-Q3 2008 19
Table 3: Consumer healthcare divesture activity, 2006-08 48
Table 4: Medical device divesture payment structure, Q1 2006-Q3 2008 57
Table 5: PharmaVitae Big Pharma peer set 66
List of Figures
Figure 1: The advantages and disadvantages of a narrow or broad R&D focus considerations 13
Figure 2: Majority of divesture deals are reactive as opposed to proactive (2002) 14
Figure 3: Drivers and resistors for the divesting company, 2008 15
Figure 4: There are a variety of reasons why a company decides to divest - but mainly to raise capital 16
Figure 5: Potential drivers and resistors for the company acquiring a divesture 21
Figure 6: Pharma in-licensing deal values rose from 2001 to 2005 22
Figure 7: Steps to successful divesting 28
Figure 8: Divesture team roles necessary for a successful divesture strategy 30
Figure 9: Key action points to be considered in the process of de-integrating a company asset for divesture 31
Figure 10: Strategy for carving out IT systems from parent companies 33
Figure 11: Issues to cover in a transfer service agreement 35
Figure 12: When to communicate? - when should a company reveal a divesture? 38
Figure 13: Medical devices were the most frequently divested (and acquired) asset - number of deals by acquiring industry, Q1 2006-Q3 2008 42
Figure 14: Historical and forecast ethical sales performance (% CAGR), Pfizer and Big Pharma peer set, 2001-2012 50
Figure 15: Number of US divesture deals per quarter,2006-08 53
Figure 16: Total value of divested assets in US deals, Q1 2006-Q3 2008 54
Figure 17: Mean value of divested assets in US deals, Q1 2006-Q3 2008 55
Figure 18: Payment structure of the 51 divesture deals, Q1 2006-Q3 2008 56
Figure 19: Top divesting companies in 2006-08 59
Figure 20: Top divesture acquiring companies 2006-08 60