Christoph Bieri, PhD is Managing Partner of Kurmann Partners, an M&A firm advising Pharma and MedTech companies on strategic mid-market deals in Europe and the Americas. In this article, Bieri looks back on the stand out deals of 2018 and gives his insights into 2019.


Sentiment in the industry is that we will see large mergers between Big Pharma.


In the Pharma industry, 2018 was a remarkable year for M&A. Not because of the volume of transactions, which was similar to 2016 and 2017, but because of the way the deals themselves fundamentally changed some of the large Pharma companies.


Whereas Takeda with its acquisition of Shire entered into new areas and thus diversified its business, Novartis proceeded in the other direction, continuing its focus on innovative drugs. In November, as previously announced, Novartis filed for the spin-off and listing of its eye-care unit Alcon, which is expected to reach a stock market valuation of US$ 21bn. The completion of the Alcon spin-off will mark the first culmination in an astonishing journey for Novartis.


In 2018 however, GSK was the company to engineer the most spectacular deals to re-engineer its business. In March, GKS acquired the 36.5% stake of the OTC joint venture with Novartis still owned by the latter, for US$ 13bn. Then, at the end of 2018, Pfizer and GSK agreed to merge their OTC businesses into a new Joint Venture (JV), with GSK as the majority owner. The GSK/Pfizer JV has combined revenues of US$ 12.7bn and will be a market leader in the USA and China. Based on the valuation metrics of the Novartis/GSK transaction, we estimate that Pfizer’s 32% stake in the JV is valued at approximately US$ 17bn.


However, GSK didn’t stop there in its mission to strengthen its OTC business. Simultaneously with the Pfizer deal, GSK announced its plan to split as a group within 2 to 3 years, creating two companies: one focused on consumer health and the other, on developing and commercializing innovative drugs.


GSK’s split is in line with our view that large Pharma companies, in the mid-term, are forced to focus on 1 of the 4 strategic archetypes: originators, generic drug manufacturers, OTC/consumer health and Point-of-Call specialists. Each archetype has a different culture and objectives and requires different capital structures. Mixing the business model increases complexity and reduces competitiveness.


The trend of streamlining business platforms to focus on 1 of the 4 strategic archetypes was also confirmed by other deals announced in 2018. In the OTC arena, Merck KGaA sold its OTC operation to Procter & Gamble for US$ 4.2bn and BMS divested its consumer health business in France to Taisho for US$ 1.6bn. Strengthening its dermatology “Point-of-Call” business, LEO acquired Bayer’s prescription dermatology business for estimated US$ 800m, whilst Servier bought Shire’s oncology franchise for US$ 2.4bn, ensuring direct commercial presence in the USA for the French company.




Building a sustainable platform in a specific market segment – to become a “Point-of-Call” specialist – was also the motive for Sanofi’s 2 large acquisitions announced in January 2018. The French group first agreed to acquire Bioverativ for US$ 11.6bn and a few days later, Ablynx for US$ 4.5bn. Bioverativ already had 2 products to treat haemophilia and generated revenues of approximately US$ 1.1bn in 2018, growing 30% year-on-year. However, the company (a spin-off of Biogen) had a rather meagre pipeline. With the Ablynx acquisition, Sanofi acquired an innovative technology platform, including a late-stage drug development program for a blood clotting disorder which in the meantime has been approved in Europe. The 2 transactions, claim Sanofi, establish the French group as a leading player in the market for rare blood disorder treatments.


So, what should we expect in 2019? Certainly, we will continue to see pipeline deals this year. We also expect that one or another of the large Pharma companies may make large-scale divestments in order to streamline businesses. Sentiment in the industry is that we will see large mergers between Big Pharma, like BMS’s acquisition of Celgene, announced in January this year. We concur that strategically, deals between originators may make sense. However, industry-wide uncertainty caused by Brexit or by US politics could make it more difficult to finance large deals.