PHARMA DEALS DURING SEPTEMBER 2014
(Part 1 out of 3)

by Roger Davies

This year there have been two major strategic initiatives by big pharma companies: rationalisation of portfolios by trading business areas with one another to consolidate and strengthen market share in specific sectors; and M&A of large companies driven by the need to bolster sales and profits by synergy and tax savings

During September, there were more restructuring and portfolio rationalisation announcements but some big pharma M&A deals are now looking less likely following tax changes announced by the US Treasury.

Company restructuring and portfolio rationalisation

Following restructuring by Pfizer, GSK, Novartis, Lilly and Merck & Co,Bayer has jumped on the portfolio rationalisation bandwagon with its decision to spin off as a separate listed company its Material Science division leaving the focus on Healthcare and Crop Science. The proceeds of the spin off due to be completed in the next 12 to 18 months have been estimated to be around $13 bn similar to the $14.2 bn being paid by Bayer for Merck & Co's consumer health business. In September Bayer completed the divestment of its interventional device business to Boston Scientific for $400 m. In the same way as Abbott spun off its pharma division in early 2013, so Baxterhas announced it will spin off its pharma division into a listed company calledBaxalta with sales of $6 bn.

Both Bayer and Baxter have justified the decision as enabling the management of the spin out companies to be more autonomous and make their own investment decisions whilst having access to capital markets. The question is whether breaking up a conglomerate structure, as Bayer has done, is best for the company and its investors.  In the financial community, the valuation of conglomerate companies is discounted compared to more focused companies because of the perceived lack of synergy between diversified businesses.  So in theory by splitting a conglomerate into separate companies, the overall valuation should increase.  In the case of Bayer there is probably very little synergy between pharmaceuticals and plastics so it was not surprising that the share price of Bayer increased by 6% following the announcement.

Merck KGaA is going in the opposite direction to Bayer and Baxter by consolidating its conglomerate structure. It has announced the purchase of Sigma Aldrich for $17 bn representing a hefty 6.3x sales.  The share price premium was 37% much less than the 53% being paid by Abbvie for Shire.  The acquisition will increase Merck Millipore's product range, sales and geographic coverage and also generate synergy savings of $0.3 bn per year.  Merck Group comprises biopharmaceutical (2013 sales $7.7 bn), consumer health ($0.6 bn), performance materials ($2.1 bn) and laboratory supplies ($3.4 bn + $2.7 bn from Sigma Aldrich). While Merck may not wish to follow Bayer and spin off its performance materials division, there does not seem much point in retaining the consumer health division with less than 5% of sales, a low EBITDA margin and an insignificant player in the OTC market.  Perhaps Merck KGaA will follow the strategy adopted by Merck & Co and divest its consumer health business?

Company acquisitions and tax inversions – the heat is on

This year is going to be a record year for M&A in the pharmaceutical industry with the overall value exceeding the peak year of 2009, assuming that the announced deals are completed and are not stopped by changes in US tax regulations! The tax inversion story whereby a US company buys out a smaller foreign company and then adopts its tax nationality, has been one of the major talking points behind some of the deals that we have reported this year in various Deal Watch issues. This is a US issue predominantly but something that is playing out across the headlines and carrying some considerable deal impact on European companies.

The situation has arisen as the current US tax laws mean that US companies pay US tax when they repatriate profits from other operating units across the world. This is unlike other tax jurisdictions which only charge tax on revenues which arise in that particular territory. Coupled with the fact that US corporate tax can be as much as 35% compared to other territories such as Ireland (12.5%) and the Netherlands (20-25%), it is obvious that there are clear financial incentives for companies to look for tax sparing deals and corporate structures to escape paying US tax.

This is not a recent nor uniquely pharma issue. Tax inversions were happening in the 1990s usually involving countries such as Bermuda e.g. Tyco in 1997 and has included insurance, manufacturing and resource companies. As a result in 2004 Congress enacted new legislation seeking to prevent tax inversions.  Within a few years the tax advisers had found new financial structures to avoid the law and, following the financial crisis, tax inversions substantially increased particularly amongst pharmaceutical companies (see table below).

Year	Acquirer	Target	New company tax domicile
2010	Valeant	Biovail	Canada
2011	Alkermes	Elan	Ireland
2012	Jazz	Azur	Ireland
2013	Liberty Global	Virgin Media	UK
2013	Actavis	Warner Chilcott	Ireland
2013	Perrigo	Elan	Ireland
2014	Endo	Paladin	Ireland
2014	Theravance Biopharma		Cayman Islands
2014	Horizon	Vidarg	Ireland
Pending	Medtronic	Covidien	Ireland
Pending	Mylan	Abbott - generics	Netherlands
Pending	AbbVie	Shire	Jersey
Pending	Burger King	Tim Hortons	Canada

However it was the recent bid made by Pfizer to acquire AstraZeneca which really brought matters to a head with the US government realising that steps needed to be taken to close this particular loophole.

With the political gridlock in Congress blocking or significantly delaying new legislation, the US Treasury announced on 22nd September new tax rules effective immediately to reduce the tax benefits of completed deals and make new inversions more difficult and less financially attractive.  These include blocking loans to access overseas earnings without paying tax, preventing restructuring overseas units and hence accessing cash reserves tax free and the closure of the loophole which allows transfer of cash or property from an overseas subsidiary to a new parent.

These new measures will impact deals that have not yet closed such as Medtronic's $43 bn acquisition of Covidien and AbbVie's $54 bn acquisition of Shire; renegotiation and/or restructuring the deal may be required or the deal may be terminated.  In the latter case, many deals contain sizeable break-up fees such as $850 m in the case of Covidien/Medtronic.  This non closure penalty would not fall due if the deal is vetoed by shareholders or if there is a change in law, but changes in tax guidelines may not be a specified exclusion.  The effect of the announcement of the new tax guidelines has been a temporary decrease in the share prices of the US acquirers and an increase in the workload (and income) of US tax advisers looking for new loopholes.

Fuente: PMLiVE

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WHAT REALLY STANDS IN THE WAY OF CUTTING HEALTH CARE COSTS
(Part 2 out of 2)

by Ngan MacDonald and Walter Linde-Zwirble 

When forced to choose between abstract evidence and experience, many physicians tend to rely on experience. This keeps health care costs high, write consultants Ngan MacDonald and Walter Linde-Zwirble in this opinion piece

Preventing Re-hospitalization

Take the problem of re-hospitalization. The ability to predict who is genuinely at risk for re-hospitalization could enable health care providers to follow up closely with those patients – and only those patients. By avoiding expensive re-admissions, we can save as much as 15% in health care costs, as we found in a recent study we conducted.

While outdated methods do capture the right patients, they also sweep up many more people who are actually at far lower risk. The result? Expensive treatments and tests are applied to vast populations of patients who, in fact, do not all need the same treatment. This also ignores factors that occur during a patient’s current hospital stay. But we now know that complications during surgery, duration of surgery, and type of anesthesia can significantly affect the likelihood that a patient will be re-hospitalized.

Physicians and hospitals who are willing to apply today’s highly sophisticated data-driven treatment in their practice have a historic opportunity. They can lead the way in controlling health care costs while providing better care.

If not health care providers, who? We urgently need to control health care costs, but we lack the political will to create national legislation or initiatives that would create standards and protocols for treatment based on advanced analytics. If the solution is going to be found, it’s going to have to start locally – with physicians and hospitals working together to create those standards.

But they will have to put aside their all-too-human distrust of analytics versus experience. They will have to do this by using the data from their own patients to build improved treatment protocols. They can then be confident that the right data went in — including the variables that can make apparently similar cases quite different.

For example, a number of oncologists collaborated with health outcomes researchers to understand how today’s analytics lead to better outcomes. The researchers combined diagnostics, patient and treatment information about the course of chemotherapy in non-Hodgkin’s lymphoma. The outcomes data from clinical trials showed that use of a biologic drug could reduce complications in chemotherapy. That data was integrated with data about the physicians’ patients. The physicians were then able to identify patients who could benefit from supportive therapy with a biologic drug, resulting in fewer complications due to chemotherapy. And because the physicians experienced this in their actual practices, with their own patients and patient data, the gap between evidence and experience closed.

As more physicians and hospitals achieve such outcomes, consider the possibilities: Costs coming under control; insurers and pharmaceutical companies sharing their data with health care providers to further refine treatment standards; momentum building nationally to attack health care costs through better care. In fact, that may be the only way we can counter the lack of political will to take on the issue from the top and to overcome the biggest obstacle at the bottom — our biases about evidence.

Fuente: KNOWLEDGE@WHARTON

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¿Cómo INCORPORAR y APLICAR Modelos de
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http://msg-latam-meic.blogspot.com.ar/2014/06/capacitacion-in-company-programa_6246.html

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¿Cómo IMPLEMENTAR ESTRATEGIAS EFECTIVAS?

Recetas para Escenarios Turbulentos

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WHAT REALLY STANDS IN THE WAY OF CUTTING HEALTH CARE COSTS
(Part 1 out of 2)

by Ngan MacDonald and Walter Linde-Zwirble 

When forced to choose between abstract evidence and experience, many physicians tend to rely on experience. This keeps health care costs high, write consultants Ngan MacDonald and Walter Linde-Zwirble in this opinion piece

A study of Blue Cross insurers released on July 9 by the plans’ trade association reported that health insurers are slowly moving toward “value-based” payments to doctors and hospitals. Instead of basing payments on the number of tests and procedures performed, they are experimenting with a system that rewards providers for improving care and lowering costs. The goal, says Blue Cross, is to move away from a system that rewards high cost over high-quality, efficient treatments.

That laudable goal, however, is likely to encounter resistance in a place you might least expect it: The highly rational, scientifically trained minds of physicians.

Consider, for example, the treatment of severe sepsis, the leading cause of death in non-cardiac intensive care units (ICUs). Some years ago a new drug showed great promise for treating these massive infections – if it was administered almost immediately upon the patient’s admission. Though the drug cost thousands of dollars, it had the potential to produce better outcomes – more patients surviving and experiencing fewer complications requiring additional treatment. Despite the drug’s high price, these better patient outcomes would have made the treatment more cost-effective in the long run – saving lives and money.

Nevertheless, physicians just couldn’t bring themselves to go against their years of experience in treating sepsis. Nor were they eager to upend the “escalator” model of care in which response to a condition is proportionately increased if the patient does not respond to the current treatment. You don’t start with the heroic, like a multi-thousand dollar drug; you stick to basics. In addition, they had an inherent mistrust of the data about the drug because they knew it came out of clinical trials that controlled for other complicating factors. How could they be sure that the same effect would be achieved in a hospital setting?Consider, for example, the treatment of severe sepsis, the leading cause of death in non-cardiac intensive care units (ICUs). Some years ago a new drug showed great promise for treating these massive infections – if it was administered almost immediately upon the patient’s admission. Though the drug cost thousands of dollars, it had the potential to produce better outcomes – more patients surviving and experiencing fewer complications requiring additional treatment. Despite the drug’s high price, these better patient outcomes would have made the treatment more cost-effective in the long run – saving lives and money.

As a result, despite strong evidence that the drug was both clinically and economically effective, the manufacturer could not convince ICU physicians to initiate treatment with it. Hospitals, too, don’t like to be outliers, fearing that an unorthodox treatment protocol will invite lawsuits. The drug was abandoned.

What this suggests is that the problem of controlling health care costs is partly in our minds.

As recent books such as Daniel Kahneman’s Thinking, Fast and Slow and Dan Ariely’s Predictably Irrational have taught us, what we think we are absolutely sure of often turns out to be wrong. And we often cling to those certainties even in the face of strong evidence to the contrary. When faced with a choice between experience and abstract evidence physicians will, like a great many other people, tend to rely on experience.What this suggests is that the problem of controlling health care costs is partly in our minds.

For physicians, that impulse made sense in the days before massive computing power and advanced data science. But now we can go far beyond yesterday’s analytical models built on insurance data or on tightly controlled clinical trials. We can build models that take into account many variables, identify only those variables that are statistically significant, and help clinicians provide the right treatment to the right patients.

Fuente: KNOWLEDGE@WHARTON

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¿Cómo INCORPORAR y APLICAR Modelos de
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http://msg-latam-meic.blogspot.com.ar/2014/06/capacitacion-in-company-programa_6246.html

¿Cómo GERENCIAR EFICAZMENTE a partir del

MANAGEMENT ESTRATÉGICO?

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Recetas para Escenarios Turbulentos

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GENOMIC ENTREPRENEURS PROMISE TO PERSONALIZE MEDICINE

by Laird Harrison

The era of personalized medicine continues to advance with the introduction of products that can analyze genes, developers report.

"Eventually, everyone will have their genome sequenced," said Reid Robison, MD, MBA, from Tute Genomics. "Imagine a world in which your medical care is 100% unique. Every diagnosis, every medication, every dietary guideline can be tailored to you and only you."

Dr. Robison and other genomics experts presented their ideas here at Health 2.0 Annual Fall Conference.

Tute Genomics uses machine-learning algorithms to analyze an individual's genome for susceptibility to genetic disorders and adverse drug reactions. Tute is making its findings available to patients, clinicians, and researchers.

BaseHealth goes a step further, said Jorge Velarde Jr., MBA, who is chief executive officer and president of the company. Genomics information from partner companies is combined with lab results, family history, nutrition information from questionnaires, and other data. "Not only do we collect it once, but we are constantly collecting," he said.

The company produces charts and graphs to show patients how they can alter their risk for conditions like type 2 diabetes. For example, it might compare the benefits of lowering triglycerides with the benefits of lowering blood pressure.

"We rank your risks so you can actually focus on what is important to you," he said.

Some patients might need more than a chart to help them interpret the significance of their genomes.

Imagine a world in which your medical care is 100% unique.

To fill that gap, Counsyl provides educational videos related to the findings. People who have questions can contact a human genetic counselor through the program's interface, explained Laura Martini, director of product design, who represented the company during the session.

The future of personalized medicine "is not just the raw data, it's having access to healthcare professionals who can help make sense of it and discuss next steps," said Martini.

Helping genomics researchers get paid for their work is the aim of YouGene, said technical officer Ryan Downs. Each time a clinician prescribes a test that uses a patented biomarker, YouGene collects a royalty and disburses it to the patent holder.

The program benefits clinicians by giving them access to the newest tests, benefits researchers by paying them for their work, benefits insurers by lowering the cost of healthcare, and benefits patients by encouraging more research, Downs explained.

"What we provide is the liquidity between all these stakeholders," he said. "It helps grease the wheels of innovation."

During the discussion period after the session, an audience member asked whether the companies are legally liable for their interpretation of a patient's data. "If I want to take a test, do I have to sign your disclaimer," he asked. "Can people sue you?"

Martini explained that users do have to sign waivers. "That's very standard with every sort of lab test. We don't use the data for anything beyond clinical use and research," she noted.

Velarde reported that the program at BaseHealth complies with the Health Insurance Portability and Accountability Act of 1996 and the Clinical Laboratory Improvement Amendments of 1988. "The information is delivered by a physician," he said.

Fuente: Medscape

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¿Cómo INCORPORAR y APLICAR Modelos de
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http://msg-latam-meic.blogspot.com.ar/2014/06/capacitacion-in-company-programa_6246.html

¿Cómo GERENCIAR EFICAZMENTE a partir del

MANAGEMENT ESTRATÉGICO?

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http://msg-latam-meic.blogspot.com.ar/2014/06/capacitacion-in-company-programa_3.html

¿Cómo GERENCIAR PROCESOS DE CAMBIO

y no sufrir en el intento?

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http://msg-latam-meic.blogspot.com.ar/2014/06/capacitacion-in-company-programa.html

¿Cómo IMPLEMENTAR ESTRATEGIAS EFECTIVAS?

Recetas para Escenarios Turbulentos

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