Allergan. That’s who. Last week, Allergan announced its acquisition of Zeltiq and its flagship CoolSculpting system. CoolSculpting is the system you’ve see in ads. It cools fat cells underneath the skin, which then freeze and die, resulting in a whole new you! It’s almost like Allergan thinks we live in a society of increasing vanity. Add fat freezing to Allergan’s portfolio that already includes Botox, Kybella (injection to treat double chin), and other aesthetics and plastic surgery offerings and what do you get? A one-stop-shop for pulling off that sweet, sweet Joan Rivers look you’ve always wanted. Just kidding… Kind of…
Insurance: taking the safe path that might cost you now, but will benefit you in the long run. Insurance company Aetna apparently tried the safe path to accomplish a “megamerger” with Humana by pulling out of ACA exchanges where the two were competing. According to Judge John D. Bates, who officially blocked the merger on Monday, Aetna pulled out of these markets not simply due to profit concerns, but to “improve its litigation position.” Turns out, as anyone with insurance could tell you, the safe path doesn’t always benefit you as much as you think it will. The blocked deal doesn’t bode well for the Anthem-Cigna merger, which has a larger price tag than the Aetna-Humana deal and is similarly stalled by the US Justice Department.
Mergers & Acquisitions – the making of a new company, new products, and the seemingly endless new opportunity. But it’s not all sunshine and rainbows; just ask some Mylan employees. Mylan announced in a December 5 SEC filing that they are “currently developing the details of the cost reduction initiatives, including workforce actions,” and that “less than 10 percent of its global workforce may be impacted.” That’s a significant number considering Mylan reported 35,000 employees in 2015. In October, Mylan terminated 94 employees after acquiring Meda Pharmaceuticals in New Jersey. According to FiercePharma, Mylan provided “severance, benefits and outplacement services during [the] transition.” But that’s not the news this 10% wants to hear. To them, M&A feels more like MMA [spoiler alert: it’s a broken nose].
Election season has passed and Donald Trump is set to take office in 2017, accompanied by a newly Republican-filled Congress. This means we could be poised to witness even more of the mega-mergers that have taken place across the pharma landscape. These mergers have been popular for US companies partly because it has allowed them to achieve huge (…yuge) tax savings due to US tax rates. President-elect Trump has stated multiple times that corporate tax rates are too high and that he will be working to drop them drastically to promote competition within the US. If this comes to fruition, be prepared to see more companies bring in off-shore dollars to take advantage of these changes.
The agribusiness behemoth Monsanto has accepted Bayer AG’s $66 billion takeover bid. The offer will be the largest all-cash deal to ever take place… if Bayer can get past regulatory hurdles in about 30 different jurisdictions. If it can’t, Bayer has to pay Monsanto $2 billion to make up for it. The deal would put Bayer in control of more than a quarter of the world’s seed and pesticide supply. This means Bayer’s biggest business is now agriculture-based, not healthcare. Could this mean less involvement in pharmaceuticals for Bayer? Most of that $66 billion came from bank loans and, as any college grad knows, owing the bank a lot of money means less cash to buy drugs.
Drug innovation post-pharma mergers drops faster than Ryan Lochte’s credibility post-Olympics according to a study published by the Harvard Business Review. Researchers analyzed 65 pharma deals and found that innovation declines post-merger, both within the merging companies and among competitors of the new entity. The data show that patenting and R&D spending among competitors drops by more than 20% within four years after the merger. Researchers theorize this innovation decline among competitors occurs because the merger has created one less rival competing in the same therapeutic area. Thus, less push to innovate. With increasing awareness of the impact on innovation, we’ll see if regulators are quicker to put the kibosh on future mergers.
Remember when Snapchat turned down Facebook’s $3B offer? Everyone thought it was crazy. Well, maybe not everyone. Apparently Medivation was taking notes. Their rejection of Sanofi’s $9.3B proposal now has it cashing in a fat $14B check from Pfizer. Sure $11 or $12B may have done the job, but $14B in cash ensured there wouldn’t be any counter-offers. What was at stake? Medivation’s promising oncology pipeline which includes its (very successful) prostate cancer drug, XTANDI, which generated ~$2.2B over the past four quarters and has the potential to more than double that. Maybe the lashing Pfizer received that caused the Allergan break-up has made it want to start shopping local, a.k.a. make the US Treasury Dept. happy again.