Introduction

Mega-mergers (defined here as M&A events with deal sizes >$5bn) have been a long-term strategic feature of the pharmaceutical industry and have played a key role in shaping the structure and composition of today's leading companies. Is it possible to quantify exactly how much of Big Pharma's sales growth has been driven by M&A versus how much has been self-produced through organic growth?

Scope

*This report analyzes 22 large scale M&A events that have occurred to date within the Big Pharma peer set over the period 1995-2014

*Datamonitor has identified two distinct classes of M&A event: small/fast growth acquisitions and big/slow growth acquisitions.

*Using these two classes Datamonitor has identified three company-level M&A growth strategies that can be attributed to each of the Big Pharma players:

*In addition to the impact of mega-M&A on sales performance the report also assesses the financial implications associated with different M&A strategies

Highlights

Twenty-two large-scale M&A events (defined as those valued above $5 billion) have occurred within Big Pharma over 19952014. Furthermore, every Big Pharma player has undertaken large scale M&A activity at some stage over this period, thereby illustrating it as an ingrained peer set strategy.

Over the period 19952014, Big Pharma prescription pharmaceutical sales are forecast to increase from $84 billion to $381 billion, with absolute growth of +$187 billion provided by M&A activity. In other words, two-thirds (c.63%) of Big Pharma sales expansion over a 20-year period will be driven entirely by M&A activity.

Reasons to Purchase

*Assess how much of Big Pharma's sales growth over 1995-2014 will be driven by M&A versus how much will be self-produced through organic growth.

*Assess how Datamonitor has classified each of the current Big Pharma players by their dominant M&A growth strategy

*Analyze the M&A and organic sales growth profiles for each Big Pharma company over the period 1995-2014

ABOUT DATAMONITOR HEALTHCARE 2
About the PharmaVitae team 2
Chapter 1 Introduction 3
Scope of analysis 3
Methodology 3
Company coverage 3
Data sources 4
Re-creating analysis from this report using PharmaVitae Explorer queries 4
Further reading 5
Chapter 2 Executive summary 6
Key findings 6
M&A is the dominant form of Big Pharma sales growth over 1995-2014 7
c.63% of absolute Rx sales growth contributed by large-scale acquisitions 7
M&A has allowed Big Pharma sales growth rate to keep pace with overall market... 8
...while maintaining Big Pharma's overall market share 10
Since 1995, 22 large scale M&A events have occurred within Big Pharma 11
Each of the Big Pharma players have implemented large-scale M&A 11
Acquirer/target company overview 11
The 22 M&A events can be classified by scale and growth performance 14
Assessment of M&A size and five-year sales CAGR performance reveals two main acquisition types 14
Only three M&A events have delivered fast growth performance over subsequent five year period 15
All fast growth acquisitions share mAb-access characteristic 16
Roche's acquisition of Genentech has delivered most sustainable revenue growth 17
Only access to high-growth statins lifts large-scale acquisitions above flat growth threshold 19
Oncology mAbs to replace statins as leading product type in Rx market 21
Flat growth for recently acquired Big Pharma companies illustrates that M&A will be insufficient to offset patent cliff decline but scale growth remains imperative 22
Sales growth potential of large M&A events further diminished by demise of blockbuster growth model 22
Big Pharma R&D has been unable to keep pace with the acceleration in blockbuster growth driven by M&A 23
M&A event types illustrate fundamentally different company growth strategies 24
Big Pharma players who primarily use M&A to 'buy growth' 25
Big Pharma players who primarily use M&A to 'buy scale' 25
Big Pharma players who have engaged in >2 mega mergers: 'multi M&A' 25
Big Pharma players who have primarily avoided mega mergers and stayed 'organic' 26
Financial performance implications by M&A growth strategy type 27
29
Table of figures 29
Chapter 3 Big Pharma M&A activity, 1995-2014 30
Key findings 30
Big Pharma M&A timeline 1995-2009 31
M&A is the dominant source of Big Pharma sales growth over 1995-2014 32
c.63% of absolute Rx sales growth contributed by large-scale acquisitions 32
M&A has allowed Big Pharma sales growth rate to keep pace with overall market... 33
...while maintaining Big Pharma's overall market share 34
Increased scale has driven an expansion of blockbuster portfolios... 35
...but M&A will not allow Big Pharma to scale the patent cliff 37
Year-on-year growth analysis illustrates growing influence of M&A but also severity of patent cliff 39
Big Pharma M&A dependency analysis 40
Company-level market share analysis 42
Chapter 4 M&A analysis 1995-2014 by company 43
Key findings 43
Classification of companies by M&A growth strategy 44
'Buy Growth' players 45
Roche-Genentech 45
Importance of M&A to overall performance 45
Overview of M&A lineage 1995-2014 46
Post-M&A performance of acquisitions 48
Johnson & Johnson 49
Importance of M&A to overall performance 49
Overview of M&A lineage 1995-2014 50
Post-M&A performance of acquisitions 52
Abbott-Solvay 53
Importance of M&A to overall performance 53
Overview of M&A lineage 1995-2014 54
Post-M&A performance of acquisitions 56
'Buy Scale' players 57
Merck-Schering-Plough 57
Importance of M&A to overall performance 57
Overview of M&A lineage 1995-2014 58
Post-M&A performance of acquisitions 59
GlaxoSmithKline 61
Importance of M&A to overall performance 61
Overview of M&A lineage 1995-2014 62
Post-M&A performance of acquisitions 65
Sanofi Aventis 66
Importance of M&A to overall performance 66
Overview of M&A lineage 1995-2014 67
Post-M&A performance of acquisitions 69
AstraZeneca 70
Importance of M&A to overall performance 70
Overview of M&A lineage 1995-2014 70
Post-M&A performance of acquisitions 73
Bayer AG 74
Importance of M&A to overall performance 74
Overview of M&A lineage 1995-2014 75
Multi-M&A players 78
Pfizer-Wyeth 78
Importance of M&A to overall performance 78
Overview of M&A lineage 1995-2014 79
Post-M&A performance of acquisitions 82
Novartis 84
Importance of M&A to overall performance 84
Overview of M&A lineage 1995-2014 85
Post-M&A performance of acquisitions 88
Organic growth players 89
Eli Lilly 89
Importance of M&A to overall performance 89
Overview of M&A lineage 1995-2014 90
Post-M&A performance of acquisitions 92
Bristol-Myers Squibb 93
Importance of M&A to overall performance 93
Overview of M&A lineage 1995-2014 94
Post-M&A performance of acquisitions 96
Chapter 5 Finacial Consequences of Growth, Scale & Organic Strategies 97
Key findings 97
Introduction 98
Overview of financial and stock market analysis approach 98
Profit margin (EBIT / Total revenues) 100
Capital turnover (total revenues / capital employed) 101
Return on capital employed (EBIT / capital employed) 102
Market capitalization 104
Chapter 6 Appendix 105
Methodology 105
Definition of a merger & acquisition event, the mega-M&A threshold and the acquirer/target distinction 105
Framework for analyzing Big Pharma M&A events over 1995-2014 106
Abbreviations 110
Exchange rates 111
About Datamonitor 112
About Datamonitor Healthcare 112
Datamonitor consulting 112
Disclaimer 114

List of Tables
Table 1: Company coverage 3
Table 2: Big Pharma M&A timeline and overview, 1995-2014 13
Table 3: Big Pharma M&A timeline and overview, 1995-2014 31
Table 4: Example of RootCo ( DestCo growth 108
Table 5: Exchange rates, 2009 111

List of Figures
Figure 1: The PharmaVitae Explorer 4
Figure 2: Big Pharma Rx pharmaceutical sales ($m) by source, 1995-2014 7
Figure 3: Big Pharma Rx pharmaceutical absolute sales growth ($m) by source, 1995-2014 8
Figure 4: Rx sales CAGR (%) for total market & Big Pharma peer set, 1995-2008 & 1995-2014 9
Figure 5: Big Pharma share (%)of total Rx pharmaceutical market by organic/M&A sales, 1995-2008 10
Figure 6: Lineage of companies with one round of M&A activity 11
Figure 7: Lineage of companies with two rounds of M&A activity 12
Figure 8: Lineage of companies with more than two rounds of M&A activity 12
Figure 9: Scatter chart analysis of acquired companies, 1995-2014 14
Figure 10: Big Pharma M&A events classified by % relative size of target company by acquiring company & % CAGR of target company (five years post-M&A) 16
Figure 11: Re-based absolute growth & total Rx revenue performance of Centocor, Knoll and Genentech, 13/19-year post-M&A period ($m) 18
Figure 12: Grouped Big Pharma M&A events classified by % relative size of target company by acquiring company & % CAGR of target company (5 years post-M&A) 19
Figure 13: Global Lipitor and Crestor sales ($m), 2001-14 20
Figure 14: Global sales ($m) of statins (C10A1) and oncology-mAbs (L1X3), 2001-14 21
Figure 15: Big Pharma blockbuster Rx sales ($m), 2001-14 24
Figure 16: Classification of Big Pharma companies by M&A growth strategy 25
Figure 17: Big Pharma companies classified by M&A growth strategy (by % CAGR of target company [five years post-M&A] and % o