Rather, the change is marked by larger spin-offs – and the strategy of the big pharmaceutical companies to concentrate more on the innovative pharmaceutical business.
According to experts, these plans and the resulting strengthened financial resources of the corporations could pave the way for a larger wave of takeovers in the next two years, especially in the biotech sector.
Three major spin-offs have already been determined this year and next: On the one hand, both the British Glaxo-Smithkline and the US corporation Johnson & Johnson are planning to separate their high-turnover consumer health divisions, i.e. their business with non-prescription health products .
On the other hand, the Swiss Novartis Group is preparing to separate from its generic subsidiary Sandoz. Novartis has already completed the sale of a stake in its domestic rival Roche for a good $ 20 billion. There is also speculation that sooner or later Sanofi could initiate a withdrawal from the consumer business.
The group plans to spin off its high-revenue consumer health division.
(Photo: Reuters)
In all of these cases, sales or spin-offs will amount to well into the double-digit billion range. The consumer divisions of GSK and Johnson & Johnson are estimated by analysts to be valued at a good 50 billion dollars. Generic drug company Sandoz could add more than $ 20 billion to Novartis if sold. The same should apply to the consumer division of Sanofi, should the Paris group decide to split.
The planned spin-offs and divestments herald the last chapter in a structural change that began in the 1990s with the break-up of large chemical-pharmaceutical conglomerates such as the Hoechst, ICI, Rhone-Poulenc and Ciba-Geigy groups subsequently led to numerous large mergers and acquisitions in the pharmaceutical sector.
Withdrawal from fringe activities
In parallel to the takeovers, many pharmaceutical companies gradually withdrew from peripheral activities in the health sector. The US corporations Pfizer and Eli Lilly, for example, put their veterinary medicinal products on the stock exchange as independent companies under the names Zoetis and Elanco.
Novartis made its ophthalmology subsidiary Alcon independent in 2019, after the group had previously abandoned activities such as veterinary medicine, diagnostics and self-medication. Firms like Bristol-Myers Squibb, Merck and Boehringer parted ways with their consumer divisions as early as the 2010s.
US corporations Pfizer and Merck & Co. even went a step further in the last two years by parting with larger parts of their traditional, but already patent-free, pharmaceuticals business. Pfizer formed the independent pharmaceutical company Viatris with its subsidiary Upjohn and the generics manufacturer Mylan.
Merck & Co. placed Organon on the stock exchange. Pharmaceutical companies such as Astra-Zeneca or Roche have parted with various old products in the course of smaller deals. Around two thirds of the world’s 20 leading pharmaceutical manufacturers therefore now present themselves as exclusive pharmaceutical companies with a strong focus on innovative and patented drugs.
Several factors are driving the structural change: On the one hand, diversification within the health sector turned out to be only moderately successful for most of the actors. Investors have long been pushing for a stronger focus.
In the consumer business, the large corporations were slowed down in part by smaller local competitors who took advantage of new opportunities in online sales. In the generics business, strong price pressure for off-patent active ingredients on the US market has been causing considerable losses for several years.
On the other hand, the innovation potential of the industry has steadily improved over the past decade due to scientific advances. New product classes and therapy concepts such as bispecific antibodies, cell therapies or the mRNA technology used in corona vaccines offer the prospect of broadening and accelerating product development.
In this respect, innovation strategies have become more attractive, but they also place higher financial requirements – especially since a large part of the innovations can ultimately only be realized through alliances or acquisitions in the biotech sector.
“If a company is broadly positioned, it needs an appropriate capital structure in order to be able to invest sufficiently in all business areas so that it can successfully keep up with the competition. If this cannot be achieved in this way, a spin-off may also open up better development opportunities for the less profitable parts of the company, ”says KPMG partner and industry expert Christian Klingbeil.
Growing financial strength
At the same time, with this focus, the groups are also creating scope for investments and acquisitions in their innovative core business. Experts therefore already see the germ of a new wave of takeovers in the current wave of spin-offs.
Corporations such as Johnson & Johnson, Pfizer, Novartis and possibly also Glaxo-Smithkline are heading towards positive cash positions with the planned divestments and are also generating in some cases very high free cash flows in their operating business.
SVB Leerink experts assume that these companies will each have more than $ 100 million in firepower for possible takeovers this year. Pfizer in particular is considered predestined for larger deals.
Because the group still has a third stake in GSK’s consumer business and is likely to generate very high income in the current year from the business with the Covid vaccine developed by Biontech and with its Covid drug Paxlovid.
More: Novartis plans to continue growing in 2022 – and could divest its generics activities