Big Pharma aims to cast off old drugs to raise $42B for higher-profit R&D efforts
Over the past week, word has emerged that Sanofi ($SNY), Merck ($MRK), and Abbott Laboratories ($ABT) are all planning to sell off portfolios of drugs that have lost their patent protection. The proceeds from such sales could be significant--$7 billion for Sanofi, $15 billion for Merck, and $5 billion for Abbott, according to Reuters, which learned of some planned divestitures from anonymous sources familiar with the deal discussions. Add in AstraZeneca ($AZN), whose CEO proposed deals for its neuroscience and anti-infectives businesses, and you have another $15 billion in potential proceeds--a total of $42 billion.
Analysts suggest that selling off old drugs will give the companies more freedom to invest in developing or acquiring higher-margin products. It would also free them from pricing pressure in emerging countries, which have been hounding pharmaceutical manufacturers to lower their prices of late. "It makes sense to sell your low-growth assets that drag down profit margins and to redeploy that cash to higher-value innovative biotech assets," John Boris, an analyst with SunTrust Robinson Humphrey, told Reuters.
The wave of asset sales is part of a larger trend in the pharmaceutical industry to focus on developing the medicines that are most likely to fuel growth going forward. That desire fueled Pfizer's ($PFE) recent unsolicited $106 billion buyout bid for AstraZeneca. When Pfizer announced quarterly earnings Monday, it listed results for its established products separately, as GlaxoSmithKline ($GSK) did last Wednesday. In Pfizer's case, it was an acknowledged first step toward a sale or spinoff, and in Glaxo's, a possible deal signal.
GSK is already deep into a slimming-down strategy that includes offloading noncore assets. Last year, it sold two of its drinks brands for $2.1 billion, then sold two blood clot drugs, Arixtra and Fraxiparine, to South Africa's Aspen Pharmacare for $1.1 billion. Now other drug companies are under pressure to follow GSK's lead: When Abbott disclosed that sales of its older drugs fell 3% last year to $4.97 billion, investors protested, according to Reuters.
So which aging drugs are for sale, and who's likely to buy them? Merck's "for sale" list likely includes blood pressure treatments Cozaar and Hyzaar, which brought in a total of $1 billion last year, cholesterol drug Zocor ($301 million) and baldness remedy Propecia ($283 million), Reuters suggests. AstraZeneca's neuroscience unit includes the off-patent instant-release form of Seroquel, which brought in $350 million in 2013--presuming it has the chance to make a deal before being swallowed up by Pfizer.
Among the names that analysts have proposed as potential acquirers of these and other companies' old hit drugs are Valeant Pharmaceuticals ($VRX), Actavis ($ACT), and Mylan ($MYL)--all of which have been on the hunt for assets to boost their generics portfolios.
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