nycomed case study - coller prize 2013 winner
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PRIVATE EQUITY AND THE GLOBAL HEALTHCARE SECTOR: IMPACTS AND
OPPORTUNITIES
A tale of private equity in healthcare…
Nick Ibery, Kunal Sinha, Rishabh Mehreia
Professor Eli Talmor
THE ANNUAL COLLER PRIZE IN PRIVATE EQUITY AWARDS EVENING AND
PANEL DISCUSSION 29 OCTOBER 2013
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The diverse healthcare industry
Services
Telemedicine
Electronic medical records (EMRs)
Data analysis
Hospital/practice management
Healthcare IT (hardware & software)
Healthcare Providers/Payors
Ancillary providers (e.g. clinical laboratory, radiology, pharmacy)
Outpatient surgery centers
Physician groups Managed care
Long-term care facilities
Hospitals/health systems
Pharmaceuticals /Biotechnology
Drug Manufacturers
Drug Suppliers
Biotechnology R&D
Medical device Manufacturers/Suppliers
Consumer medical products (e.g. testing supplies, monitors, first aid)
Medical device manufacturers
Practice services (e.g. services of physicians / mid-level practitioners)
Medical device suppliers
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Positives of investments in healthcare
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Source: “Is Your Healthcare Company a Fit for Private Equity?”, by Richard Jackim, Midcap Advisors – Blog entry
Recession
Proof
Stable Cash
Flow
High
Growth
High
Margin
Platform for
Buy & Build
Highly
Fragmented
Favorable
Demo-
graphics
Positives creates opportunities
to generate returns
through efficiency
From niches within a
very diverse sector
through well managed and well
operated companies in a
fragmented sector
due to non-cyclical
nature of health-care
spending
ageing population,
western lifestyles
due to predictable
spending on and
consumption of
services and products
Macro Market
Industry
Value Adding
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Risks of investments in pharmaceuticals
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Long
Product
Cycle
Post-
Launch
Liability
Risk
Power of
Strategic
Buyers
Post-
Launch
Regulatory
Burden
No Cash
Flow pre-
Launch
Regulatory
Hurdles
Possible
Risks
~10 years for drug
discovery, development,
and commercialization
many filing and
approval stages with
very low success rates
need to wait until
commercialization (10
years)
long history of M&A
and strategic buyers
beating financial ones
significant
repercussions for
post-launch issues
significant reporting and
disclosure requirements once
products are in the market
Pre-launch
Post-launch
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Drug development process – the view from Pharma companies
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Source: “Drug Discovery and Development”, by the Pharmaceutical Research and Manufacturers of America published in 2007
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Nordic Capital Background
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Founded in 1989 by Robert Andreen and Morgan Olsson in 1989
Raised first fund in 1990
By now (2013), Nordic Capital a leading PE firm in the world
Committed regional focus through a strong physical presence – Offices and portfolio primarily across the Nordic and German speaking regions – deep roots within the Nordic region
Office Locations as of 2012 Portfolio Company Locations as of 2012
Jersey
Switzerland
United States
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Nycomed Pharma before Takeda acquisition in 2010
Leading European and Emerging Markets co.
Prescription (87%) & OTC products (13%)
Present in more than 70 countries
€2.8bn revenue & €765mm EBITDA
Approx. 11,800 employees worldwide
Blockbuster products: – Pantoprazole: 2006 sales of $2.6bn
– Daxas: newly launched but most effective
product for the $10-20bn COPD market
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Note: Takeda did not acquire Nycomed’s US Dermatology Unit (Fougera) – the above figures exclude this entity
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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
3 distinct phases of transformation for Nycomed
A pan-nordic specialty pharma co.
• Pharma focus; sold off non-pharma activities
• Focus on In-licensing for product sourcing
• Streamlined operations
Expansion to a pan-EU co.
• Global operations
• Substantial synergies (~EUR 300 mn)
• R&D pipeline
An Emerging Markets co.
• Emerging markets focus
• Leverage key products
• Daxas – approval and partnering with Forest (US) and Merck (EU)
Sale to Takeda
• €9.6bn trade sale
• Largest in Europe and 3rd largest in the world
• Joint company jumps to # 12 in the world by revenue
• Excludes Fougera
Sale of Fougera to Sandoz
• $1.5bn trade sale
• Closing H2 2012
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Nordic Capital DLJ et. al. Nordic Capital
Nordic Capital
acquires Nycomed
Nycomed
acquires Altana
Nycomed expands
aggressively into EMs
Nordic Capital
exits ex-US US exit
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1st deal: Nordic Capital acquires Nycomed Pharma
Nycomed’s profile: – Strong market position in Norway and Denmark – Well diversified product portfolio – Orphan company being divested by parent (Nycomed Amersham) – Auction to strategic investors already failed
Nordic Capital’s post-investment goals for Nycomed:
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Targets during holding period
Reduce operational costs
Divest non-core businesses
Re-position as a
pan-Nordic co. by
acquiring companies
in-licensing products
Drive revenue and EBITDA growth
Replace management
1999-2002
Transaction details – May 1999
EV $548mm
Nordic Capital stake 69%
Nycomed Amersham
stake 29%
Management stake 2%
Nodic Capital Funds III, IV
Planned Exit IPO, Trade Sale
Note: In September 2001, Nordic Capital purchased Nycomed Amersham’s 29% ownership interest using fund IV
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1st deal exit to Credit Suisse, Blackstone et. al.
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Transaction details – May 1999
EV €1,114mm
Sales multiple 2.1x
EBITDA multiple 8.9x
EBITA multiple 11.5x
Buyer Credit Suisse, Blackstone et. al.
Exit Secondary sale
Return for Fund III 6.3x / ~65% IRR
Return for Fund IV 1.9x / ~70% IRR
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2nd Deal: Nordic Capital reacquires Nycomed Pharma
Strong belief in management team’s ability to execute a well-defined growth strategy Investment Thesis: Strengthen product portfolio by in-licensing/acquiring late-stage products with clinical
proof of concept (CPoC):
– Enter rapidly growing therapeutic segments – Strengthen current offerings
Become the “Preferred partner” in Europe of research based companies
Scale down internal and early-stage projects
Increasing operational, cost and capital efficiencies
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2005-2012
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Takeda-Nycomed Deal Rationale
Geographic Synergies: Complementary geographical businesses / ease of integration:
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Source: Takeda Investor Presentation from May 2011
2011
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Takeda-Nycomed Deal Rationale
Transaction transforms Takeda’s commercial infrastructure – Deepens presence in Europe – Establishes Takeda in high growth Emerging Markets
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Europe
Emerging Markets
Source: Takeda Investor Presentation from May 2011
2011
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Nordic Capital: Value creation
Structural transformation
Operational improvement
Buy-and-build
Growth in emerging market
Strategic repositioning
Growth acceleration
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Thank you!
Open floor Q&A session
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Turning a disaster into an opportunity ... and a big success
• Coinciding with Nycomed’s acquisition
• Russian business sizeable – but unprofitable
• Nordic Capital negotiates significant discount for taking on the risk
• Many Western MNCs which had entered Russia recently, exit the market (e.g. Merck)
The Russian ruble crisis hits in August
1998
• Initial plans from Nordic Capital call for closing down Russia
• CEO of Russian business makes a case for turning around in 6 months – gets board approval and backing
• New plans call for leveraging presence in the region since Soviet era, strong brand recognition, and strong relationships with customers and suppliers
Nycomed Russia CEO spots an opportunity
• Receivables are recovered with minimal writeoffs
• Co. is restructured (~50% layoffs)
• Exiting MNCs lower competitiveness in the Russian market
• Some (e.g. Merck) out-license all their products to Nycomed to sell in the region
Russia drives growth and provides the appetite for Ems
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The Russian business grew from $11mm in 1999 to more than $600mm in 2011
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Altana acquisition numbers
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Transaction details – Dec 2006
EV of Altana €4,215mm
EV/EBITDA 6.3x
EV/EBITA 7.4x
Wt. EV/EBITDA 7.6x
Wt. EV/EBITA 10.3x
New Nordic Capital Equity €350mm
New Debt for the group €5,000mm
New Debt/EBITDA 4.9x 2006E pro forma
EBITDA
Dec 2006
Note: In connection with closing Blackstone and other Credit Suisse co-investors
sold their remaining ownership in Nycomed to Nordic Capital and other investors
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Altana acquisition – a big bet or a calculated risk?
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Benefits Risks
Significant leverage to support the deal
Sun/Teva Launch “at-risk”
Target 3x size of acquirer
Pantoprazole LoE
Few bidders
Strategic geographic fit
Cost saving through synergy and restructuring
Favorable Cash Flow profile
Dec 2006
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