New Players in
Healthcare
The Healthcare Market is Changing
While the largest deals in healthcare today connect traditional healthcare
players such as AstraZeneca’s $1.26 billion takeover of Ardea Biosciences or
SXC Health Solutions’ $4.4 billion merger with Catalyst Health Solutions, some
recent deals with players such as Costco, Nintendo, Samsung, FujiFilm and
others are more surprising. We believe that these deals may signal a
fundamental shift in the healthcare industry, where non-traditional
healthcare players see an opportunity to break into an industry that has
historically been the domain of healthcare specialists.
The “rule book” for success in healthcare had been relatively stable for several
decades – new product innovation coupled with aggressive marketing
However, the market is changing, pharmaceutical sales growth is down, fewer
NMEs are being approved and media spending has seen significant cuts
10%
$800
8%
$600
6%
5%
$400
$200
4%
2%
0%
60
50
40
30
20
10
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
$0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Global Pharmaceutical Sales
NME's Approved
Global Pharmaceutical YOY Growth
Pharmaceutical Media Spending: 1996-20103
6.0
5.41
40%
5.0
$US Billions
$US Billions
$1,000
NMEs Approved2
Global Pharmaceutical Sales1
# Approved
9%
4.43
5.18
50%
4.66
4.77
4.34
2.59
3.0
2.82
20%
2.78
10%
1.92
2.0
0.70
0.98
1996
1997
40%
30%
3.45
4.0
1.0
4.65
9%
1.31
0%
-10%
0.0
-20%
1998
1999
2000
2001
Pharmaceutical Media Spending
2002
2003
2004
2005
2006
2007
2008
2009
2010
% Change in Pharmaceutical Media Spending
Souce: 1)IMS Health “Top-Line Market Data & Trends”; 2) US FDA “NME Drug and New Biologic Approvals”; 3) Ad Age
Insights White Paper “Pharmaceutical Marketing”
2
New Players in Healthcare
Copyright © 2012 by Grail Research
A New Age in Healthcare
Today, many major healthcare players are on the defensive. In some ways
the threats are “more of the same” - patent expirations, generic threats, an
increasing role of payors in decision making, and relatively uninspiring
pipelines.
However, this is coupled with some new trends, including the rising
prominence of consumerism, information technology, and the threat of
biosimilars. Combined, these factors may be leading to a greater need for
healthcare players to look outside the industry for ways to further innovate
and remain competitive.
New Trends
1 Consumerism
●
●
●
The Internet is the most popular
source for health-related
information

70% of consumers seek
health information on the
internet1
Resulting in increased
prevalence of online healthcare
media

Many health-based websites
seeing double digital growth
in unique visitors from Sep
2010-2011:
─ Medical Institute of
Health : +28%
─ Drugs.com: +26%
─ KevinMD.com: +15%
─ Mayo Clinic: +14%
Thus influencing consumers to
take a more proactive and
informed role in their health
decisions
2 Healthcare IT
●
Governments
across the globe
are investing in
healthcare IT in
order to reduce
overall healthcare
costs
─
─
The US federal
government plans
to invest $26 billion
in healthcare IT
during 2010-20202
The Healthcare IT
market alone is
expected to
exceed $162
billion with a
CAGR of 10.2%2
3 Biosimilars Threat
●
Increasing threat of
biosimilars due to
expiring patents
and the global
financial crisis
which is increasing
the pressure for
healthcare systems
to cut costs:
─
By 2020, 12 major
biologic products
will be exposed to
biosimiliar
competition
amounting to $54
billion in sales the
US and EU3
Source:1)Online survey on mot than 10,000 adults across select European countries on “consumers health information
seeking behaviors”, Porter Novelli , Apr 2011; 2)World Healthcare IT Market, Market and Markets, 2011; 3)Bernstein
Research, Gal R. Biosimilars: Reviewing US law and US/EU patents
3
New Players in Healthcare
Copyright © 2012 by Grail Research
Traditional Deals & Common Motives
The largest healthcare deals of the past decade, occurred in only the
last 3 years and follow a familiar model of traditional healthcare players
combining for…
DIVERSIFICATION
EXPERTISE
SCALE
…In order to expand product pipelines and diversify product and service
offerings
Largest Healthcare Deals in the Last 10 Years
Acquirer
Date
Target
Details
●
2009
●
2011
●
2009
●
2009
●
2012
4
New Players in Healthcare
Pfizer acquired Wyeth for $68 Billion
─ Why: Gain diversification and scale, in the face 14
patent expirations, which could equal up to $35 billion
in lost revenues
Novartis acquired Alcon for $51.6 Billion
─ Why: Anticipated profit from the eye-care market that
is expected to grow faster than pharmaceuticals in the
near future
Roche acquired Genentech for $46.8 Billion
─ Why: Expected cost savings of $750-850 Million a year
and improved product development
Merck acquired Schering-Plough $41.1 Billion
─ Why: Obtain diversification and scale to combat the
slowing pace of drug discovery and impending drug
patent expirations
Express Scripts acquired Medco for $29.1 Billion
─ Why: Gain scale and cost efficiencies, in addition to
greater clout in order to drive down prescription costs
Copyright © 2012 by Grail Research
What’s New?
Unusual Healthcare Deals
Also in the last three years, we’ve noticed some other interesting mergers and
partnerships in the healthcare realm that have included your not-so-typical
players. Although not as large in value as the traditional healthcare deals, we
see this as an interesting and developing trend.
Unusual Healthcare Deals in the Last 3 Years
Company
Date
Partner/
Target
Jun
2009
Details
●
Feb
2011
●
Jul
2011
●
Mar
2012
Feb
2011
Nov
2011
●
●
●
●
Dec
2011
Jun
2011
●
Dec
2011
●
Feb
2012
●
Developed Bayer’s DIDGET blood glucose monitoring system, targeted at
diabetic kids, that plugs into the Nintendo DS. Aimed at transforming kids’
experience by tapping into their existing passion for video games1
Purchased Merck’s biologics contract manufacturing and service
subsidiaries Diosynth and MSD Billingham2
Established a joint venture to develop, manufacture and promote generic
drugs in Japan. Fujifilm will own 51% stake and Dr. Reddy's the remaining 49%2
Acquired SonoSite, a leader in bedside ultrasound, ultra high-frequency microultrasound technology, and impedance cardiography equipment2
Signed a $266 million deal with CRO Quintiles to produce biosimilar versions of
bestselling drugs like Rituxan, Humira, Enbrel and Remicade. The biosimilars
should hit the market by 20163
Acquired Nexus, a division of ITC Nexus Holding Company, a provider of
cardiac-testing solutions4
Closed a $300 million biosimilars development joint venture with Biogen Idec to
develop, manufacture and market biosimilars. Samsung will own 85% of the JV,
while Biogen will provide its expertise in protein engineering and biological
manufacturing5
Signed a deal to develop HD203, a candidate biosimilar form of Enbrel®
(etanercept). Merck will commercialize HD203 globally, except for in Korea
and Turkey where Hanwha has retained marketing rights6
Partnered with Etransmedia and Allscripts to launch a nationwide cloud-based
electronic health record (EHR) system designed for small physician practices7
Acquired Prometheus, a provider of proprietary diagnostic testing services for
gastrointestinal disorders8
Source: 1)Mydigitallife, 2009; 2)Fujifilm News Archives; 3)Fierce Biotech, 2011; 4)The Wall Street Journal, 2011;
5)Outsourcing-Pharma, 2011; 6)Merck Newsroom; 7)InformationWeek, 2011; 8)Scientia Advisors, 2012
5
New Players in Healthcare
Copyright © 2012 by Grail Research
Why the Shift?
Immediate Factors
Two immediate drivers for these deals are the emerging importance of
biosimilars, and the role of technology and consumerism in healthcare.
With patents expiring on an estimated $54 Billion worth of biologics1, the
market for biosimilars is booming. New manufacturing capacity and new
processes are required to meet this demand. Consumers are also
becoming more proactive about their health, and the increased use of
information management and monitoring tools also drive the need for
technology innovation.
Immediate Factors
Biosimilars Boom
●
●
Growth Potential: By 2015, sales of
biosimilars are expected to reach USD
1.9-2.6 billion, up from $378 million for
the year to the first half of 20112
New Investment & Manufacturing
Capabilities: Traditional players are
looking for new sources of investment
and manufacturing capabilities to
produce the in-demand biosimilars,
attracting many large manufacturing
companies to enter the healthcare
game
Technology & Consumerism
●
●
Consumer-Friendly Technologies:
Technology companies have already
made significant investments in
consumer-friendly technologies
Customer Base & Distribution
Channels: Technology companies
also have significant existing customer
bases and distribution networks which
can be leveraged for healthcare use
Example: Samsung
●
●
Leveraging their manufacturing
experience, Samsung entered
the lucrative biosimiliars market
establishing the business,
Samsung Biologics, specializing in
biopharmaceutical
manufacturing
Samsung’s deal with CRO
Quintiles to manufacture
biosimilar versions of bestselling
drugs and their joint venture with
Biogen Idec to develop,
manufacture and market
biosimiliars further deepened their
position
Example: Nintendo
●
●
Nintendo taped into the
healthcare market with their
partnership with Bayer to develop
the new DIDGET blood
monitoring system that plugs into
the Nintendo DS
Nintendo utilized their existing
technology and market reach to
children ages 5-14, that Bayer
would otherwise be unable to do
Source: 1) Bernstein Research, Gal R. Biosimilars: Reviewing US law and US/EU patents 2)IMS Health “Shaping the
biosimilars opportunity”
6
New Players in Healthcare
Copyright © 2012 by Grail Research
Why the Shift?
Broader Forces Impacting Change
Significant changes in the way healthcare is delivered and paid for in the
context of a sustained economic slowdown is challenging both healthcare
and non-healthcare firms to seek new ways to grow. New players see an
opportunity to participate in the $5.4 trillion global healthcare market1.
Traditional players must manage risks and costs as they respond to a
changing landscape.
Broader Forces
$US Trillion
Traditional players are under business pressures due to a sustained period of economic stress
and changing government policies:
Global GDP2 vs. Public Debt3: 2001-2011
80.0
80%
60.0
60%
40.0
40%
20.0
20%
0.0
0%
2001
2002
2003
2004
2005
Healthcare Players Seek Leverage
●
Seeking Leverage: Existing healthcare
players are looking to leverage others’
technology, manufacturing skills, and
distribution networks as they face cost
constraints in the current economic
market
New Players Seek Growth
●
●
Looking for Growth Areas: New Players
see potential in the huge and growing
healthcare market:
─ The global healthcare industry is a
$5.4 Trillion1 market (7.7% of GDP2)
Leverage Existing Technology &
Expertise: New players have the
technology and expertise that is being
demanded to remain competitive with
consumers in today’s healthcare
market
2006
2007
2008
2009
2010
2011
Global GDP
Global
Public Debt
Global
Public Debt
as % GDP
Example: Allscripts & Etransmedia
●
By partnering with Costco, Allscripts
and Etransmedia gain access to
Costco’s customer base as a
distribution channel, allowing them
to become an opportunity-based
decision and reaching consumers in
a way they would never have been
able to before
Example: FujiFilm
●
Fujifilm's advanced R&D
capabilities, quality systems and
market know-how backed by Dr.
Reddy's cost competitive, highquality generic drug development
& manufacturing and generics
experience will help to establish a
strong presence in the Japanese
pharmaceutical market
Source: 1)World Health Organization: Health Statistics, 2012; 2) World Bank Data 3)Economist Intelligence Unit
7
New Players in Healthcare
Copyright © 2012 by Grail Research
Conclusion
We have identified a number of intriguing deals in the healthcare industry
with a new cast of companies. We see this as a sign of a changing
landscape in healthcare, where the advantages of incumbency are
offset by new challenges, and where non-healthcare focused companies
now see an opportunity to break into what has historically been a closed
industry.
As with most industries, healthcare has historically fit the adage “change is
constant”. However, the pace and magnitude of change has
accelerated in recent years – and companies are struggling to meet the
demands for innovation and change. These demands come at a time
when healthcare companies are facing intense financial pressures, and in
many cases demand that they participate in a market of products and
services that is outside of their historical comfort zone.
New players often bring much needed leverage into this backdrop – in
the form of cash, expertise, and capabilities. The trend could move in one
of three ways:
•
•
•
After a short window of time, healthcare companies will regain their
footing and no longer seek the assistance of outside companies,
and outsiders will lose their toehold in the healthcare industry
New companies may strengthen their position and begin to make
significant headway in healthcare without joining forces with
established healthcare companies
The current trend will continue, leading to a wide range of crossindustry collaborations and deals
Change creates both challenges and opportunities. Healthcare today is
proving to provide much of both.
8
New Players in Healthcare
Copyright © 2012 by Grail Research
If You Are…



A healthcare company
interested in who might be new
competitive entrants into your
space
A healthcare company
interested in what companies
might be an innovative new
partner to your organization
A non-healthcare company
interested in how your
organization can leverage your
capabilities to enter this multitrillion dollar space
…Contact Us
Grail Research
([email protected])
Copyright © 2012 by Grail Research, a division of Integreon
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