Divestments: a fundamental tool in growth strategies


by Jeff Greene

The life sciences industry is undergoing a tectonic shift due to regulatory changes and a growing focus on patient outcomes. In response, leading companies are using divestments as a fundamental tool in their growth strategy. Fifty-five percent of life sciences companies surveyed for our 2015 EY Global Corporate Divestment Study expect to see more strategic sellers during the next 12 months.  And, in addition, fifty-two percent expect the number of unsolicited bids to increase this year, more than any other industry sector.

In the past year alone we saw M&A activity in the life sciences sector skyrocket, with global deal values almost doubling over 2013. Businesses are under constant pressure to improve portfolio performance and shareholder returns and to employ better analytics to make smarter decisions. In particular, the prospect of activist shareholders is influencing corporate decisions.

Pressure to improve patient outcomes and tougher reimbursement criteria from payers are forcing life sciences companies to rethink their strategies and refocus on core assets. But while many companies are using divestments to change their business models, we still see too few that are properly preparing for this complex process.  As a result, many find themselves rushing to the finish line without achieving full value.

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Heard at J.P. Morgan: implications for 2015

EY - JPM scorecardOptimism was the sentiment of the 33rd annual J.P. Morgan Healthcare Conference (JPM) as more than 10,000 executives migrated to the City by the Bay to deal and dish on all things life sciences.

During dozens of investor presentations, one-on-one company meetings and cocktail-party conversations, EY’s life sciences team gleaned a number of insights while on the ground in San Francisco (see accompanying chart):

M&A mojo:

Not only did biopharma and medtech execs celebrate 2014’s record-setting M&A climate, they were optimistic the deal climate would stay hot into 2015. Certainly, the news flow at JPM didn’t disappoint: Shire got the party started with its US$5.2 billion acquisition of NPS Pharmaceuticals, but the deals kept flowing, with announcements from Roche (a majority stake in Foundation Medicine), Novartis (a digital initiative with Qualcomm Ventures), Biogen Idec (a contingent deal for Convergence Pharmaceuticals), Illumina (a non-traditional alliance with Lockheed Martin) and AmerisourceBergen (the acquisition of MWI Veterinary Supply).

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2014: A new benchmark year for biotech IPOs [infographic]

EY - 2014: A new benchmark year for biotech IPOs

In mid-December at an EY life sciences conference in Cambridge, MA, entrepreneur and venture capitalist Alexis Borisy of Third Rock Ventures reminded the audience, “These are good times for biotech.”


Unprecedented. Record-setting. Red-hot. Those are just a few of the adjectives that have been used to characterize the IPO climate of the past 12 months. As our infographic (at left – click to expand) clearly shows, the IPO winds of 2014 didn’t simply edge through the cracks in a window pane. Instead, they blew the biotech financing doors wide open — and they did so for the second 12-month period in a row.

Indeed, the IPO class of 2014 hit new benchmarks in terms of both the number of public listings (63) and proceeds raised (US$4.9 billion), outstripping the superlatives set in 2000-01 at the height of the genomics bubble.

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Firepower fireworks drive record M&A in 2014. What’s ahead for 2015?

2014 was a record year for biopharma deal making, as M&A dollars eclipsed US$200 billion for the first time in over a decade. A convergence of forces fueled the acquisition fireworks. Rising equity valuations, historically low interest rates and a desire to use deal making to add revenue growth or business focus all contributed to the explosive display.

Actavis jump-started the deal making pyrotechnics with its US$23 billion acquisition of Forest Pharmaceuticals in February 2014. Actavis’ white knight bid for Allergan, which followed six months of fireworks courtesy of activists and Valeant Pharmaceuticals, provided the year’s grand finale.

In the intervening months, the light show never really abated:  many big pharma companies joined with their own brand of fireworks, executing a “just focus” strategy that included divesting and acquiring assets where sustainable growth was more achievable. Turning heads from Wall Street to Washington, some of the loudest percussions were transformative deals that ultimately did not come to pass.

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