Yesterday in a move that returned attention to healthcare takeovers, Bill Ackman, CEO of the hedge fund Pershing Square Capital, announced a bold and unusual move by partnering with pharmaceutical company,
This morning the healthcare landscape restructures further as
Last month I wrote about Carl Icahn’s active participation in the acquisition of Forest Laboratories, Inc. (FRX) by
Ackman, as CEO of Pershing Square, has gained control of a wide range of companies, from the fast-food chain, Wendy’s Company (WEN), to Target Corporation (TGT), and most recently
What the Icahn and Ackman moves have in common is the formation of an alternative to the giant pharmaceutical model. Those “big pharma” companies are so large, bureaucratic and slow-moving that they are unsustainable.
The Novartis agreements appear to be a serious attempt to slim down a huge company, to make it more manageable and responsive. In effect, Novartis is trying to transform itself into a company similar to those being built by Ackman and Icahn. They are reflective of a new pharmaceutical model for the 21st Century.
But too small is no good either. When a pharmaceutical company doesn’t have the requisite mass, it doesn’t have the resources to see it through both good times and bad.
The Actavis/Forest merger and the proposed Valeant/Allergan merger bring together companies with complementary resources and double digit profits. They constitute a warning to large pharmaceutical companies that as they engage in layoffs, downsizings, contractions and divestiture, other, more nimble companies, are acquiring, merging and growing to take over leadership in the drug and medical device industries.
Since late February, the biotech markets have retreated from their highs by almost 20 percent. Some people may ascribe this retreat to news surrounding pricing of Solvaldi by Gilead Science Inc. (GILD). But, as a rejoinder to Gilead’s moves, it must be remembered its product was also obtained by acquisition. The acquisition represented a pathway not lost on those seeking a different corporate healthcare model.
Both Ackman and Icahn understand that big pharma is in retreat. The evidence for this is in the news daily. Downsizing, consolidation of multiple business entities, blockbuster drugs losing exclusivity and stock buybacks, are all signs of a business segment that is facing mortal threats. It is reasonable to expect that Ackman and Icahn both will continue to be major participants in this realignment. They exemplify money managers with foresight who recognize the benefits of realigning the drug and medical device arena.
I believe that Icahn’s previous announcement, Ackman’s announcement yesterday, and today’s announcements by Novartis, GSK and Lilly herald positive potential paths for the global pharmaceutical industry.
The beauty of healthcare is that the story is never over. If the IPO market shuts down, the focus is on M&A. If there’s a rapid rise in stock prices in the sector, there’s a correction and it becomes a buying opportunity. If there’s general weakness in biotech, consolidators roll in. It’s a constant cycle of narrative and counter narrative. The fact that it’s an industry fraught with high risk/reward makes it all the more alluring for some investors. In this case you have mega-combinations occurring as personalities and cultures drive M&A activity that could lead to the next clash of the titans.