Nycomed in play after rumoured Takeda move

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Takeda’s rumoured $12bn bid to buy privately owned Nycomed is a play for the rapidly emerging markets that the Japanese group has put front and centre of its business plan. A purchase of the Swiss drugmaker would double Takeda's sales in emerging markets, and as Nycomed is particularly strong in Latin America, Russia and the Middle East, expansion plans of the two companies would be well-aligned.

However, a buyout would likely not go unchallenged; Teva in particular has proven itself a worthy foe in bidding wars for generic and, more recently, specialty pharma players (Teva triumphs in 'must-win' battle for Ratiopharm, March 18, 2010). However, counterbalancing Teva’s aggressive M&A stance is Nycomed’s significant debt – reported at $5.5bn – and Takeda’s willingness to pay a high premium when global growth is its goal.

For sale

This rumoured approach comes after Nycomed has spent the last few years focusing on emerging market growth, a strategy that will help provide an exit for its owners, whether this comes through a trade sale or IPO. Jersey-based private equity firm Nordic Capital owns 41.2% and Credit Suisse private equity arm, DLJ Merchant Banking Partners, owns 25.6%.

Rumours of a sale date back at least to early 2009 (Nycomed joins list of private companies up for sale, March 24, 2009). Since 2008, annual sales in emerging markets have grown 35% to €1.1bn ($1.56bn) in 2010, helped not in the least by efforts in India (EP Vantage Interview - Nycomed planting deep roots in India, November 2, 2010). Like many firms, it is also positioning itself for growth in China (Nycomed joins search for growth in China, November 1, 2010).

Takeda already is underway with a plan to treble its sales force in China by 2015, but currently reports only a small share of its sales outside Europe, US and Japan – just ¥41.8bn ($516.2m) in the 12 months ended March 31, 2010, 3% of its total revenue.

In announcing annual earnings yesterday, Takeda management put an emphasis on its activities in China and India, and said it has a plan to enter the Russian and Commonwealth of Independent States region by 2013. Purchasing Nycomed, which reported €479.3m ($681.6m) in sales in 2010 in the Russia/CIS region, would acheive this quickly.

Pipeline troubles

Should the acquisition occur, the aim would be to fill a revenue gap. Diabetes drug Actos, its biggest seller, loses patent protection in August 2012 and global sales are expected to shrink from $4.37bn this year to just $877m in 2016, according to consensus forecasts at EvaluatePharma. Its top four drugs, Actos, Blopress, Prevacid and Leuplin, accounting for nearly two thirds of $13bn of drug sales this year, are expected to halve in value by 2016.

Its only recent novel entry is blood pressure drug Edarbi, but as a drug in the aging angiotensin II antagonist class it is far from being the company’s saviour. Diabetes drug Nesina is approved in Japan and has decent potential value based on eventual approval in Europe and the US, while several late stage in-licensed drugs have been disappointing. Thus, as recently highlighted by EP Vantage, a healthy bank balance and pipeline issues means Takeda should be in a buying mood (Takeda's pipeline may require a helping hand, March 31, 2011).

The urgent need for M&A activity was highlighted by analysts from Nomura only yesterday, who estimate that profits will be cut in half by 2014 with the loss of the Actos patent.

"Takeda urgently needs to secure external growth sources as there is no way it will be able to shore up profits on its own. This could mean M&A activity to offset the decline in longer-term earnings in one fell swoop," they wrote, perhaps presciently.

Wither Teva?

As Teva is already in the process of a $6.8bn Cephalon buyout it might not be in the mood to take on a second acquisition of such a scale. However, the Israeli generics group has set an ambitious sales target of $31bn by 2015, and with the Cephalon buy would still be close to $5bn short (Teva strives to meet growth targets with Cephalon buy, May 3, 2011).

At $4bn in sales in 2010, Nycomed would get Teva tantalisingly close; moreover, with its own portfolio of specialty and generic products, Nycomed would fit well within the Teva strategy.

Thus, Nycomed is an attractive target for both companies, and no doubt other big pharma players pursuing emerging market growth. The rumours that have emerged are likely to be just the beginning of the bidding.

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