India: Mergers, Acquisitions And Joint Venture: Trends In Bio-Similar Industries

Last Updated: 18 July 2017
Article by Vijaylaxmi Rathore

Most Read Contributor in India, December 2018

Mergers, acquisitions and joint ventures (M&As) amongst businesses are well known trends and often considered critical for the growth of a company. Additionally, M&As help to strengthen and explore market opportunities, functional and financial synergy along with ability to generate additional revenues. M&As further encourage cross-cultural growth, transfer of technical knowhow and administrative maturity and/or adaptation.

However, M&As do not always result in a success, especially amongst companies with different objectives and scope of businesses. At times companies tend to become overtly adamant leading to operative challenges while also facing difficulties in adapting to the cultural diversity in dissimilar markets. Nevertheless, in today's time, it is imperative to have M&As with the key players in an industry so as to grow and eventually become market leaders.

A "merger" is a combination of two or more entities at various degree into forming one entity. The result of merger is not only accumulation of assets and liabilities of the entities but also to form one business with the uniform objectives, finances, access to technologies and shared markets. On the other hand, an "acquisition" is a takeover by an acquirer entity by virtue of controlling the share capital, assets and/or liabilities of the target or acquired entity. Lastly, "joint ventures" are coming together of two or more businesses for a purpose such as entering into a new business and/or new expertise, or for investments, which may or may not be for a limited duration.

The different forms of mergers are explained under Competition Act, 2002:

  • Horizontal Merger- The merging entities are from the similar industries. This merger supports merged entity towards monopoly by removing competitor. As far as the competition concern this merger is performed under competition commission.
  • Vertical Merger- The merging entities are at different stage even though from similar industries. This merger supports merged entity towards greater independence and self sufficiency.
  • Congeneric Merger- The merging entities with different customer-relationship even though from interrelated industries. This merger supports merged entity's market growth by using aggregated customer relationship.
  • Conglomerate Merger- The merging entities are from the different industries. This merger results in support for the merged entity by financial resources and increased market value.
  • Cash Merger- The shareholder of one entity receives cash instead of shares and exit from the merged entity.
  • Triangular Merger- This is a tri-partite arrangement as a target merges with a subsidiary of acquirer and vice versa, also called triangular mergers.

Mergers, Acquisitions and Joint ventures in BIOSIMILAR Industries:

A "biosimilar" is a biological drug that has similar pharmaceutical standards, safety and efficacy profile vis-à-vis an approved reference biological molecule. However, unlike generics, biosimilars do not have structural similarities or they do not form replica of the original molecule. A biopharmaceutical entity dedicated to developing, manufacturing and marketing of the biosimilars as part of its therapeutic portfolio is called a Biosimilar Entity.

In contemporary times, the increased demand of biosimilars is not only beneficial to the Biosimilar entities, but also offers more viable options to the consumers or patients requiring treatment especially for diseases like cancer, cardiovascular disorders, arthritis, etc. Mergers and acquisitions (M&As) in Biosimilar industries are primary to strengthen the service, brand, and patient accessibility for a certain drug. Moreover, Biosimilars M&As also help to overcome challenges such as seeking investments, research and development, process manufacturing, marketing and/or distribution of biosimilars. Here are some of the prominent M&As from biosimilar industries-

1. The Pfizer's acquisition of Hospira:

The acquisition of Hospira by Pfizer for $17 billion is one of the biggest horizontal mergers in recent years and has been approved conditionally by European Commission (EC) Merger Regulation after investigating the competition concerns and commitments offered by the merging companies6. Both Pfizer and Hospira are US based industries, and global provider of injectable, biosimilars and human pharmaceuticals respectively. Therefore, the said acquisition helps Pfizer to expand its existing generic injectable drugs range as well as access over the infusion technology and new  category of biosimilars are collectively expected to generate revenues of $800 million annually by 20187.

Hospira, Inc. is now a subsidiary of Pfizer Inc. and the global market for biosimilars is estimated to be approximately $20 billion in 2020. However, Hospira's biosimilars and generics range already helped to raise 11% revenues of Pfizer as reported on its second quarter result after acquisitions8. Later Pfizer started to take a bid from Hospira's few units and sites which seem underutilized as a part of cost cutting and improvisation in company performance. In later 2016, Pfizer sold out Hospira's Infusion System (HIS) to ICU medical and also planning to close Hospira's plant at Colorado9 and few sites at USA by 201910.

2. The ICU Medical's acquisition of Hospira from Pfizer:

A deal between Pfizer and ICU Medical Inc. comes out as a cash and stock deal, as ICU acquired Hospira's Infusion System (HIS) having IV pumps, solutions, and devices from Pfizer, which compliments ICU existing Intravenous product portfolio. Consequently, ICU is expected to become a bigger player of infusions by this deal with Hospira enhanced global marketing platform. The deal is settled for $1 Billion by exchange of cash of $600 million, $400 million newly issued shares of ICU Medical apart from this Pfizer will nominate one member on ICU Medical's board as long as it hold 10% of its equity11.

However, in January 2017 the definitive agreement between ICU and Pfizer for Hospira Infusion System (HIS) has been revised, as the latest performance report of HIS deviates as expected. Based on the modified agreement the deal is settled for $900 million ($400 million in equity + $275 millions cash + $75 million seller note). Pfizer may be receiving additional $225 based on the HIS performance target till December 2019.

As per Mr. Vivek Jain, Chief Executive Officer, ICU Medical "The combination of these two businesses is the natural evolution of a productive relationship that began more than 20 years ago when Hospira began integrating ICU Medical needle free technology into their infusion offering globally" 12.

3. Gedeon Richter acquisitions of Finox holding:

The Hungarian drugmaker Gedeon Richter acquire of Finox holding, a Swiss Biotech firm for $ 190 million. Finox holding, a leading producer of wide range female reproductive health products has handed over the global right of Bemfola development and marketing to Richter by this transaction. Bemfola is a recombinant-human Follicle Stimulating Hormone (r-hFSH) biosimilar of Gonal-f, which stimulates egg development in ovaries and suggested during in-vitro fertilization. The global right of Bemfola includes the exclusive marketing authorization in EU, presently counting 20 countries where drug is being sold already, excluding marketing authorization in USA13.

This acquisition helps Richter not only to strengthen and expand its existing women healthcare portfolio by using Finox scientific and managerial expertise. But, also to further expand its dedication towards biosimilar development and commercialization. The leading approach and expertise of Richter toward development and marketing of female fertility product worldwide will definitely get boost by Finox existing portfolio.

The leading Biopharmaceuticals are acquiring more firms, like GE Healthcare acquisitions of Xcellerex Inc., Amgen acquires Onyx Pharmaceuticals etc., with aim to monopolize and mark their presence as leading player in health care industry.

4. The newer player: Aurobindo acquired four biosimilars from TL Biopharmaceutical

Aurobindo Pharma Ltd., an Indian generic pharmaceutical industry is expanding its diverse portfolio specifically the biosimilars manufacturing by acquiring four licensed biosimilars from a swiss firm TL Biopharmaceutical AG in undisclosed amount. Aurobindo Pharma will get development, commercialization and marketing rights of these Biosimilars, three out of four acquired products are anticancer monoclonal antibodies, and one of lead molecule bevacizumab from this transaction is expected to conduct a clinical trial this year. Aurobindo will acquire eight more biosimilars in future to strengthen its biosimilar

portfolio. The company has been building a biosimilar manufacturing facility in Hyderabad. The transaction is a strategic investment for future growth and will position Aurobindo as a strong player in the rapidly evolving biosimilars landscape, according to the company14.

Likewise Eagle Pharma acquires Arsia Therapeutics, Fresenius Kabi acquisitions to Merck KGaA and many more new players are making their entry to biosimilar portfolio by M&A.

CONCLUSION-

The primary goal of an M&A is to strengthen and expand the functional and financial synergies of the merged entities while also enabling exploration of new portfolios or business sectors for the said entities. Further, at times M&A also results in market leadership by merger of entities of same/similar industries. In biosimilar industry, we see a considerable increase in coming together of entities which has led to faster growth of the industry and increased demand of biosimilars.

Biopharmaceutical firms often differ in functional, financial, customer related services and other aspects. Therefore, the conventional M&A gets modified at various levels and with mixed ratios based on the interest areas and objectives of participating entities, for e.g., The ICU Medical's acquisition of Hospira from Pfizer is a mixed M&A.

Firms new to biosimilars such as Aurobindo, Eagle Pharma etc., are showing interest towards building and acquiring biosimilar portfolio as a part of greater therapeutic coverage and to charter the global markets. On the other hand, the leading producers of biosimilars like- Sandoz, Teva Pharmaceutical, Amgen, Mylan, AbbVie etc., are stepping slowly toward monopolization of the market by M&A with promising biosimilar entities.

The trend of increased M&As in the biosimilar industry would lead to advanced research & development in the sector and will infuse competition amongst pharmaceutical firms which will hopefully result in efficacious and safer biosimilar innovations for diagnosis and treatment of diseases.

Footnotes

6 http://europa.eu/rapid/press-release_IP-15-5470_en.htm

7 http://www.pfizer.com/news/press-release/press-release-detail/pfizer_completes_acquisition_of_hospira

8 http://www.fiercepharma.com/pharma/pfizer-jacks-up-q2-revenue-by-11-thanks-to-last-year-s-big-hospira-buyout

9 http://www.fiercepharma.com/manufacturing/pfizer-closing-hospira-plant-colorado-100-jobs-to-be-lost

10 http://www.biopharmadive.com/news/pfizer-to-shed-four-hospira-sites/424896/

11 http://www.pfizer.com/news/press-release/press-release-detail/icu_medical_inc_to_acquire_the_hospira_infusion_systems_business_from_pfizer_inc_for_1_billion_in_cash_and_stock

12 https://globenewswire.com/news-release/2017/01/05/903876/0/en/ICU-Medical-Inc-Provides-Update-on-Hospira-Infusion-Systems-Transaction.html

13 https://www.richter.hu/en-US/pressroom/press-release/Pages/press-releases/pr160630.aspx

14 http://www.aurobindo.com/docs/press-room/company-news/2016-2017/aurobindo-pharma-forays-into-biosimilars-development-through-an-acquisition-of-four-products-from-tl-biopharmaceutical-ag.pdf

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