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Volume 3, Issue 12
Big Pharma's strategic push into biologics and continuing restructuring are among the highlights for 2007.
2007 was a year of transition for the global pharmaceutical industry. Several pharmaceutical majors announced or moved forward with restructuring plans. Several large mergers and acquisitions occurred, including (London) $15.6-billion acquisition of MedImmune (Gaithersburg, MD) and (Kenilworth, NJ) $14.4-billion acquisition of Organon BioSciences (Oss, Netherlands). And, Big Pharma continued its deal-making to build its position in biologics.
Restructuring among the pharmaceutical majors
In response to lower-than-expected growth rates, several Big Pharma companies announced restructuring and cost-saving plans. In October, GlaxoSmithKline (London) announced a £1.5-billion ($3.1-billion) operational excellence program designed to improve the productivity of its operations. The program is expected to deliver total annual pretax savings of as much as £700 million ($1.45 billion) by 2010. About 40% of the savings will come from the company's manufacturing operations. The total savings will partly mitigate the expected impact of generic competition and low sales of "Avandia" (rosiglitazone), the company's antidiabetes drug that faced increased regulatory scrutiny over safety concerns with the product.
(New York) affirmed its goal to reduce the total pretax component of its adjusted growth income by at least $1.5–2.0 billion in 2008 compared with 2006. These goals are part of ongoing effort by the company to improve its cost position through reductions in staff and manufacturing operations. Key achievements include the reduction of the number of manufacturing plants in its global network from 93 four years ago to 60 this year. The cumulative effect is a 50% reduction in the number of plants and a 35% decrease in manufacturing employees compared with 2003. As part of that cost-cutting strategy, Pfizer has stated its plans to increase its level of outsourcing. "We currently outsource the manufacture of approximately 17% of our products on a cost basis and plan to increase this substantially by 2010," said Pfizer Chairman and CEO Jeffrey Kindler in a June 2007 release.
AstraZeneca announced in July it will cut its workforce by 10% to reduce costs. The company will eliminate 7600 jobs, an increase from the 3000 job cuts it had earlier announced in February.
In July, (New Brunswick, NJ) announced initiatives to generate pretax, annual cost savings of $1.3–1.6 billion for 2008. The company estimates that it will eliminate 3–4% of its global workforce in accordance with local works councils and labor laws.
The biotechnology major (Thousand Oaks, CA) announced in August that it will cut 2200–2600 jobs as part of a plan to increase operational efficiencies. The job cuts are the first ever for the company and will result in a 12–14% staff reduction. Amgen's plan also includes closing certain production operations and reducing planned capital expenditures by approximately $1.9 billion during 2007–2008. Amgen expects its initiatives to be completed by 2008 and to generate $1.0–1.3 billion in pretax savings. The cumulative pretax restructuring charges associated with these changes are expected to be $600–700 million in 2007 and 2008, which included $289 million for asset impairment and related costs reported in the second quarter of 2007. In October, Amgen announced that it will indefinitely postpone the planned design and build-out of a bulk manufacturing facility in Cork, Ireland. Amgen announced in January 2006 plans for investing $1 billion in new process development, bulk manufacturing, and fill and finish facilities in Cork.
As is usually the case, merger and acquisition activity also provided the basis for restructuring in 2007. (Berlin), formed in 2007 from the acquisition of Schering AG (Berlin AG) by (Leverkusen, Germany), moved forward with an integration plan. The plan, announced in March, involves eliminating 6100 jobs. The staff reduction includes 1000 positions in the United States and 3150 in Europe. Some 1850 production positions and 1400 global research and development functions will be cut by 2009. Bayer estimates the move will save approximately EUR 700 million ($918 million).
Mergers and acquisitions
One of the largest deals announced in 2007 was Schering-Plough's $14.4-billion acquisition of Organon BioSciences, the human and animal health businesses of (Arnhem, Netherlands). The move added to Schering-Plough's position in central nervous drugs, women's healthcare products, and biologics capacity for developing human vaccines. Schering-Plough gained five drugs in Phase III development. Schering-Plough expects to achieve annual costs savings of $500 million over the next three years.
Schering-Plough's move served multiple functions in providing the company with late-stage candidates, strengthening select therapeutic areas, and building its biologics platform, but other deals were noteworthy for their singular focus on biologics. Chief among these deals was AstraZeneca's $15.6-billion acquisition of MedImmune. The move increases the percentage of biologics in AstraZeneca's pipeline from 7% to 27% and enlarges its total pipeline by 45 projects to 163 projects. AstraZeneca also gained biologics manufacturing capacity. MedImmune has biologics manufacturing capacity of more than 30,000 L planned by 2010, with the potential to increase capacity to as much as 60,000 L with further modest investment. AstraZeneca said this capacity secures its biologics production requirements for the long term and avoids the need for major near-term green-field manufacturing investment by company to support its biologics strategy, according to an April 2007 release at the time of the deal announcement.
The acquisition of MedImmune follows AstraZeneca's $1-billion acquisition of Cambridge Antibody Technology in 2006, which provided the company with a position in antibody research, development, and technology.
Also in 2007, (Darmstadt Germany) closed on its CHF 16.6 billion ($13.3 billion) purchase for a majority stake in the European biotechnology company (Geneva, Switzerland). The integration of Serono provides Merck KGaA with a biopharmaceutical products portfolio with 2005 pro forma sales of around EUR 3.6 billion ($4.7 billion) and about 14,500 employees worldwide. Merck KGaA's strategic push into biologics was married with a plan to divest its postion in generic drugs. In October, (Canonsburg, PA) completed its EUR 4.9-billion ($6.7-billion) acquisition of Merck KGaA's generics business.
In another biologics move, (Tokyo) US subsidiary Astellas US Holding (Deerfield, IL) agreed to acquire (Santa Monica, CA), a biotechnology company specializing in antibody research and development, for $387 million upfront and an additional $150 million to Agensys shareholders, conditioned on Agensys achieving certain milestones. Agensys applies differential gene expression technology to human tissues and has identified 30 proprietary targets in 14 cancer types, uses an optimized hybridoma method to generate fully human monoclonal antibodies, and has a GMP manufacturing facility for producing investigational antibodies for clinical trial material supply for Phase I and early Phase II trials. The deal is expected to close by the end of December 2007.
In September, (New York) agreed to acquire the biopharmaceutical company (Waltham, MA) for $430 million. Adnexus is a developer of a proprietary class of biologics called "Adnectins," which are derived from fibronectin, an extracellular protein that is naturally abundant in human serum.
To build its pipeline, biotechnology leader Amgen acquired Ilypsa (Santa Clara, CA), a private company that develops nonabsorbed drugs for renal disorders, for $420 million. The acquisition includes Ilypsa's ILY101 drug candidate, a late-stage selective phosphate binder that treats hyperphosphatemia in chronic kidney disease (CKD) patients. Amgen also will gain Ilypsa's proprietary, high-throughput, discovery and development platform. Also in 2007, Amgen acquired Alantos (Cambridge, MA), a privately held company developing treatments for diabetes and inflammatory disease for $300 million. Alantos' lead drug candidate, ALS 2-0426, is a DPP-IV inhibitor in clinical development (Phase IIa) for treating Type 2 diabetes.
Early this month, (Basel, Switzerland) expanded itsits collaboration with (Martinsried/Planegg, Germany), a biotechnology company specializing in fully human antibodies. Under a new 10-year agreement, which may be extended by Novartis for an additional two years, Novartis and MorphoSys will jointly discover and optimize antibodies in a wide range of diseases. MorphoSys will also offer increased personnel support for these projects. Novartis will make total payments, including full-time equivalent support, technology transfer, and annual licensing fees of approximately $600 million to MorphoSys. Potential payments could exceed $1 billion depending upon achieving certain clinical milestones. Biologics now represent roughly 25% of Novartis's preclinical drug candidates, and the alliance will support further development of its biologics portfolio.
In October, (Indianapolis, IN) signed a licensing deal worth up to potentially $600 million ($43 million upfront) with the biopharmaceuticla company (Rockville, Maryland). Under the agreement, the companies will develop and commercialize teplizumab, a humanized anti-CD3 monoclonal antibody, as well as other potential next-generation anti-CD3 molecules to treat autoimmune diseases.
Also in October, GlaxoSmithKline and (Cambridge, Massachusetts) formed an alliance worth as much as $760 million ($70 million upfront) to develop and commercialize otelixizumab, a humanized, anti-CD3 monoclonal antibody that could potentially treat various autoimmune and immune-mediated inflammatory diseases, including Type 1 diabetes.
In bolt-on acquisitions in biologics, (Basel, Switzerland) acquired Therapeutic Human Polyclonals (Sunnyvale, CA) for $56.5 million as part of move to enhance its position in protein research. Pfizer acquired BioRexis Pharmaceutical (King of Prussia, PA) and gained a position in biologics technology. BioRexis has a fusion technology platform to enhance the half-life, efficacy, and safety of therapeutic proteins and peptides. In November, Pfizer agreed to acquire for $164 million (Wellesley, MA), a biopharmaceutical company. The company specializes in vaccine adjuvant technology and is developing a new class of drugs focused on toll-like receptors, which work by stimulating or blocking immune system receptors.
Other key acquisitions
Outside of biologics, several pharmaceutical majors acquired companies to build their pipelines. Last month, GlaxoSmithKline agreed to acquire (Liberty Corner, NJ) for $1.65 billion in cash. Reliant is a privately held specialty pharmaceutical company with a focus on cardiovascular drugs. Reliant holds the US rights to "Lovaza" (omega-3-acid ethyl esters), a drug for treating high levels of triglycerides. The drug adds to GlaxoSmithKlines' cardiovascular portfolio, which faces increased generic competition for one of its key cardiovasular drugs, "Coreg" (carvedilol).
In a licensing deal, GlaxoSmithKline and (Lexington, MA) agreed to jointly develop and commercialize STA-4783, an injectable, small-molecule, oxidative stress inducer for treating metastatic melanoma that is entering Phase III clinical development. The total value of the pact, conditioned on achieving certain regulatory and development milestones, is $1 billion.
In a deal of Japanese mid-sized pharmaceutical companies, Tanabe Seiyaku and Mitsubishi Pharma merged to form (Osaka, Japan), effective Oct. 1, 2007. The combined company has sales of roughly 407.8 billion yen ($3.4 billion), making it the fifth largest pharmaceutical company in Japan. It has domestic ethical pharmaceutical sales of 384.7 billion yen ($3.2 billion).
In other moves, AstraZeneca acquired for $150 million Arrow Therapeutics, which focuses on the discovery and development of antiviral therapies. Eli Lilly acquired Hypnion (Lexington, MA) for $315 million. The move gave Lilly several new early-stage drug candidates as well as HY10275, a drug candidate to treat insomnia that is currently in Phase II development. In September, Merck completed its $367-million acquisition of NovaCardia (San Diego, CA), a privately held clinical-stage pharmaceutical company focused on cardiovascular diseases.