Friday, December 09, 2011

2011 M&A Of the Year Nominee: Takeda/Nycomed

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Takeda's $13.7bn acquisition of privately-held Nycomed in May was a rich deal, both monetarily, and strategically. It allowed Takeda to tick off several of its strategic imperatives in one (expensive) swoop: jumpstarting an emerging markets presence, deepening a European footprint, fashionably diversifying the product mix to include OTC and branded generics, providing an immediate revenue- and income-boost and, not least, pepping up Takeda's stuffy corporate culture.

No wonder the Japanese group was happy to stump up over three-times Nycomed's revenues, to the deep satisfaction of Nycomed's private-equity backer Nordic Capital. Nordic had long been bent on an IPO for its Swiss-based protegee, but settled for quintupling its initial 2005 investment via M&A.

It's a deal that illustrates how M&A, for all its drawbacks, can, when properly engineered, help industry players out of tight corners. Takeda's typical in facing generic competition to its biggest drug, Actos. And despite prior internationalization moves, not least its 2008 purchase of Millennium, it was also still rather typically Japanese, with too much big-company conservativism.

Nycomed allowed Takeda to show investors once again that it could act decisively and win big prizes. This was the largest cross-border transaction by a Japanese company, and, although the borrowing requirements (Y600-700bn) prompted a credit-watch from ratings agencies, taking on debt makes sense in a low-interest environment.

Coming after months of negotiations and at least a week of press speculation, the deal multiplied Takeda's emerging markets sales by eight (sensible, in today's environment), lifted its European ranking from 29th to 18th (Europe still matters, despite its problems) and should, CEO Yasuchika Hasegawa promised, deliver $375m in annual cost savings after three years, and be EPS-accretive from year one.

Never mind the numbers, Nycomed provides its new owner with regulatory expertise and infrastructure across the globe, low-cost emerging markets manufacturing, and knowledge of how to tailor product mix to meet invidual market needs -- a very important skill as reimbursement hurdles rise, both nationally and regionally.

Takeda wanted to keep "as many as possible" of the key Nycomed people on board, in order to transfer those valuable skills, but it was hardly going to keep Nycomed CEO Hakan Bjorklund: he scooted off to join private equity firm Avista Capital Partners in October 2011.

So it's not all going to be smooth sailing. Daxas, the COPD drug that was ostensibly the branded jewel in Nycomed's crown, is coming up against reimbursement hurdles. It just got slammed by U.K. cost-benefit watchdog NICE which confirmed it wouldn't recommend public reimbursement for the drug, at least not without further trials.

But at least Takeda's sails are still up. Indeed, Nycomed's European and EM infrastructure appears crucial to the group's 2012 ambition to build a global vaccine division. Any deal that permits such progress, in today's stormy pharma world, deserves an accolade.

photo by cseward via flickr, used under creative commons license

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