A tale of private equity in healthcare

Transcription

1 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

2 The diverse healthcare industry Pharmaceuticals /Biotechnology Biotechnology R&D Drug Suppliers Drug Manufacturers Medical device Manufacturers/Suppliers Medical device manufacturers Consumer medical products (e.g. testing supplies, monitors, first aid) Medical device suppliers Healthcare Providers/Payors Services Hospitals/health systems Long-term care facilities Physician groups Managed care Outpatient surgery centers Ancillary providers (e.g. clinical laboratory, radiology, pharmacy) Healthcare IT (hardware & software) Hospital/practice management Data analysis Electronic medical records (EMRs) Telemedicine Practice services (e.g. services of physicians / mid-level practitioners) 2

3 Positives of investments in healthcare due to non-cyclical nature of health-care spending From niches within a very diverse sector Value Adding due to predictable spending on and consumption of services and products High Growth High Margin Stable Cash Flow Recession Proof Positives Macro Market Favorable Demographics Highly Fragmented ageing population, western lifestyles creates opportunities to generate returns through efficiency Platform for Buy & Build Industry through well managed and well operated companies in a fragmented sector Source: Is Your Healthcare Company a Fit for Private Equity?, by Richard Jackim, Midcap Advisors Blog entry 3

4 Risks of investments in pharmaceuticals long history of M&A and strategic buyers beating financial ones significant repercussions for post-launch issues Post-launch significant reporting and disclosure requirements once products are in the market Power of Strategic Buyers Post- Launch Liability Risk Long Product Cycle Possible Risks Post- Launch Regulatory Burden ~10 years for drug discovery, development, and commercialization Regulatory Hurdles No Cash Flow pre- Launch many filing and approval stages with very low success rates Pre-launch need to wait until commercialization (10 years) 4

5 Drug development process the view from Pharma companies Source: Drug Discovery and Development, by the Pharmaceutical Research and Manufacturers of America published in

6 Nordic Capital Background 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 United States Jersey Switzerland 6

7 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 Note: Takeda did not acquire Nycomed s US Dermatology Unit (Fougera) the above figures exclude this entity 7

8 3 distinct phases of transformation for Nycomed Nycomed expands aggressively into EMs Nordic Capital exits ex-us US exit Nordic Capital acquires Nycomed Nycomed acquires Altana 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 3 rd 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 H Nordic Capital DLJ et. al. Nordic Capital 8

9 1 st 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: 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 Transaction details May 1999 EV $548mm Nordic Capital stake 69% Nycomed Amersham stake 29% Management stake 2% Nodic Capital Funds Planned Exit III, IV IPO, Trade Sale Note: In September 2001, Nordic Capital purchased Nycomed Amersham s 29% ownership interest using fund IV 9

10 1 st deal exit to Credit Suisse, Blackstone et. al. Transaction details May 1999 EV 1,114mm Sales multiple 2.1x EBITDA multiple 8.9x EBITA multiple 11.5x Buyer Exit Return for Fund III Return for Fund IV Credit Suisse, Blackstone et. al. Secondary sale 6.3x / ~65% IRR 1.9x / ~70% IRR 10

11 2 nd 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 11

12 Takeda-Nycomed Deal Rationale 2011 Geographic Synergies: Complementary geographical businesses / ease of integration: Source: Takeda Investor Presentation from May

13 Takeda-Nycomed Deal Rationale 2011 Transaction transforms Takeda s commercial infrastructure Deepens presence in Europe Establishes Takeda in high growth Emerging Markets Europe Emerging Markets Source: Takeda Investor Presentation from May

14 Nordic Capital: Value creation Structural transformation Operational improvement Buy-and-build Growth in emerging market Strategic repositioning Growth acceleration 14

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16 Thank you! Open floor Q&A session

17 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 Nycomed Russia CEO spots an opportunity 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 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 The Russian business grew from $11mm in 1999 to more than $600mm in

18 Altana acquisition numbers Dec 2006 Transaction details Dec 2006 EV of Altana EV/EBITDA 6.3x EV/EBITA 7.4x Wt. EV/EBITDA 7.6x 4,215mm Wt. EV/EBITA 10.3x New Nordic Capital Equity New Debt for the group New Debt/EBITDA 350mm 5,000mm 4.9x 2006E pro forma EBITDA Note: In connection with closing Blackstone and other Credit Suisse co-investors sold their remaining ownership in Nycomed to Nordic Capital and other investors 18

19 Altana acquisition a big bet or a calculated risk? Dec 2006 Benefits Risks Favorable Cash Flow profile Cost saving through synergy and restructuring Strategic geographic fit Few bidders Pantoprazole LoE Target 3x size of acquirer Sun/Teva Launch at-risk Significant leverage to support the deal 19

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