Divestment Strategies: Pharma is divesting in order to grow

Publication Date	December 2008
Publisher	Datamonitor
Product Type	Report
Pages	68
ISBN Number	not applicable
Product Code	DAT14046

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Summary

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.

Content

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