Big Pharma's continued hunger and search for new products

In our last encounter, we reviewed the list of the leading Big Pharma companies of 2005. I promised you, at that time, that we would look at some of the leading pharmaceuticals products and deals of 2005.

Let's get to it:

Leading Global Pharmaceutical Products

Product/Company	Disease Area	Sales ($billions)	% Growth
1. Lipitor (Pfizer)	Cholesterol Reduction	$12.9	+6%
2. Plavix (Bristol-Myers Squibb)	Anti-coagulant	$5.9	+16%
3. Nexium (AstraZeneca)	Gastrointestinal Disorders	$5.7	+ 17%
4. Seretide/Advair (Glaxo SmithKline	Respiratory Disorders/Asthma	$5.6	+19%
5. Zocor Merck)	Cholesterol Reduction	$5.3	<11%>
6. Norvasc (Pfizer)	Hypertension/Angina	$5.0	+3%
7. Zyprexa (Eli Lily)	Antidepressant	$4.7	<7%>
8. Risperdal (Janssen- Ortho/J&J)	Anti-psychotic Agent	$4.0	+13%
9. Prevacid (Abbott/Takeda)	Gastrointestinal Disorders	$4.0	+1%
10. Effexor (Wyeth)	Antidepressant	$3.8	+1%

Source: Pharmaceutical Executive, May 2006

Lipitor, the world's leading drug and first drug to reach and surpass $10 billion in annual sales, continues to grow, demonstrating the power of Pfizer's worldwide marketing machine. Pfizer also had a second drug in the top 10 drugs, Norvasc which sold $5 billion/year. These two products alone, representing sales of almost $18 billion/year, were more than most other pharmaceutical companies sold with all their products.

A number of the above products are getting close to patent expiration in the coming years including Zocor, Lipitor and others, and when this happens, you will see 80% or more of the revenue disappear within 12-24 months months. Imagine losing $10 billion in sales and profits that quickly?

For Big Pharma, it is all about acquiring other products or companies with products to survive. As a result M&A and licensing now takes up a lot of Big Pharma (and even medium-sized and smaller pharma's) efforts as well. During 2005, 48 significant M&A (mergers and acquisition) deals were done versus 52 deals in 2004. The value of these deals, according to Pharmaceutical Executive, were $42.7 billion versus $77.5 billion in 2004.


Leading Pharmaceutical M&A Transactions 2005

Acquirer	Company Acquired	Value ($ Billions)
1. Yamanouchi Pharmaceuticals (Japan)	Fujisawa Pharmaceuticals (Japan)	$7.94
2. Sankyo (Japan)	Daiichi Pharmaceuticals (Japan)	$6.65
3. Novartis AG (Switzerland)	Hexal AG (Europe - generic company)	$5.3
4. Warren Acquisition Corp (consortium of banks)	Warner Chilcott (generic Pharma company)	$2.98
5. Novartis AG ( Switzerland)	Eon Labs (Germany - Generic company)	$2.41
6. Nordic Capital AB (Scandinavia)	Nycomed A/S (Scandinavia)	$2.17
7. Sumitomo Pharmaceuticals (Japan)	Dainippon (Japan)	$2.07
8. Shire Pharmaceuticals (U.K.)	Transkaryotic Therapies (U.S.)	$1.63
9. Solvay SA (Belgium)	Fournier Pharma (France)	$1.46
10. GlaxoSmithKline (U.K.)	ID Biomedical (Canada)	$1.43

Source: Pharmaceutical Executive, May, 2006

Interesting that three of the top 10 deals were Japanese companies buying other Japanese companies showing continued consolidation of this market. The amazing thing is that up to a year or two ago, M&A was not part of Japanese culture, but in order to survive Japanese companies have adapted. No major mega-mergers took place, but some significant acquisitions of biotech companies and generic companies took place.

Already in 2006 we have seen three big M&A deals:

• Bayer's (Germany) acquisition of Schering AG (Germany)
• Novartis' (Switzerland) acquisition of Chiron (U.S.)
• Actava (Iceland) acquisition of Plava (Europe)

I think there is more to come yet as there are still many medium sized European and Japanese companies that never globalized and are feeling the pressure. There will also continue to be acquisition of U.S. biotech companies.

The driving force behind all of the above is not only to acquire products but to improve position in key pharmaceutical markets around the world. After all, this is a $602 billion market which grew about 7% last year. Let's take a look at how this was distributed around the world:


World Pharmaceutical Market By Region - 2005

Region	Sales ($ billions)	% Growth	%
TOTAL World Market	$602.0	+7%	100%
North America	$265.7	+5%	44%
Europe	$169.5	+7%	28%
Japan	$60.3	+7%	10%
Asia, Africa & Australia	$46.4	+11%	8%
Latin America	$24.0	+19%	4%
Rest of World	$36.1	N/A	6%

Source: Pharmaceutical Executive, May, 2006

The North American market, of which the U.S. is about 90%, is slowing down to perhaps its lowest growth in years. In fact, all of the other regions in the world outpaced the U.S. with rapid growth taking place in Latin America and Asia. Nevertheless, the sheer size of the U.S. market (and pricing and profits) drives M&A activity as companies look to establish a better regional foothold. As a result, M&A activity will continue pressured by:

• Need for new products to replace older products coming off patent
• Improvement of regional position in key markets

Exciting times if you have a hot new product in development! This is the best way for a young biotech company to raise money as it will be non-dilutive. The key issue for the biotech company will be the quality of its scientific data (results) and identifying the right company for its product.

See you soon!



The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC, accepts no legal liability or responsibility for any claims made or opinions expressed herein.