in Pharmaceuticals: An Interactive Game DOUG MILLER ASSOCIATE - - PowerPoint PPT Presentation

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Mergers and Acquisitions in Pharmaceuticals: An Interactive Game

DOUG MILLER ASSOCIATE PROFESSOR RUTGERS BUSINESS SCHOOL

Game Trees

Modeling competitive decisions

• Start from the beginning: Decisions go in the order they happen
• Identify all relevant players– whoever has a choice to make
• Branches of decision tree should include all potential outcomes for each choice/decision
• Consider what the payoffs will be for each competitor in each situation

Solving the game: backward induction

• Start from the end: identify the most attractive option (highest payoff) for each player, and

eliminate the less attractive options

Problems in Valuation

• Difficulty with private or international firms
• Stand-alone price vs. changes in target vs. changes in acquirer
• How long will it take to achieve synergies?
• Lack of industry knowledge, poor due diligence

Escalating commitment

• Loss of reputation (perceived)
• Overconfidence
• Framing bias (may not get another chance)
• Broker incentives
• Impending market downturn
• Structure and people changes

Misunderstanding the rules

• What if the seller:
• Opens another round?
• Decides to wait?
• Finds another bidder?
• What if regulators:
• Take six months to make a decision?
• Force you to sell off one of your current subsidiaries?
• Deny the deal?
• What if investors:
• Drop your stock price 10%?
• Begin shareholder activism?

Value of M&A deals in biotechnology and pharmaceuticals sector worldwide from 1985 to 2018 (in billion U.S. dollars)

Note: Worldwide; 1985 to 2018; Further information regarding this statistic can be found on page 8. Source(s): Institute for Mergers, Acquisitions and Alliances (IMAA) ; ID 965879

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Value in billion U.S. dollars

501 B

Largest pharmaceutical industry mergers and acquisitions ever worldwide until early 2019 (in billion U.S. dollars)

Note: Worldwide; as of February 2019; Further information regarding this statistic can be found on page 8. Source(s): Bloomberg; Forbes; ID 518674 87.3 74 73.5 72.4 65 64.3 64.2 62

10 20 30 40 50 60 70 80 90 100

Warner-Lambert (Pfizer, 1999) Celgene (Bristol-Myers Squibb, 2019)* Aventis SA (Sanofi, 2004) SmithKline Beechan (Glaxo, 2000) Actavis (Allergan, 2015) Pharmacia corp (Pfizer, 2002) Wyeth (Pfizer, 2009) Shire (Takeda, 2018) Deal value in billion U.S. dollars Target (acquirer, year)

Highest premiums paid as of Feb. 2015

Acquirer Target Date Price ($B) Premium

• 1. Gilead Sciences

Pharmasset

• Nov. 2011

$11 89%

• 2. Cardinal Health

Allegiance Corp.

• Oct. 1998

$6.4 67%

• 3. Takeda Pharmaceutical Co.

Millennium Pharmaceuticals

• Apr. 2008

$8.4 53%

• 4. Pfizer

Hospira

• Feb. 2015

$17 39%

• 5. Pfizer

Pharmacia July 2002 $59.8 38%

• 6. Amgen

ONYX Pharmaceuticals June 2013 $10.2 38%

• 7. Roche

InterMune

• Aug. 2014

$8.4 38%

• 8. Merck

Cubist Pharmaceuticals

• Dec. 2014

$9.5 37%

• 9. Merck

Schering-Plough Corp.

• Mar. 2009

$53.9 34%

• 10. Hologic

Cytyc Corp. May 2007 $6 33%