Salto Partners

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Hewlett-Packard

In another interview with ECommerce Times we talked about HP. At their last earnings call Hewlett-Packard CEO Meg Whitmen had not a lot of good news to report.

1: The PC business, Servers and Storage business were down

2: Enterprise services were the boat anchor of the business

3: The Autonomy integreation was still work in progress

 A few months later Whitmen had to concede that we are not talking about a bad quarter or two. We are talking about bad fiscal years ahead perhaps until 2016 which is light years in the tech industry. HP is in a real predicament. For many moons the company could rely on their personal computer and printer divisions to make the numbers. Those days are gone. Now, we buy smart phones and tablet computers. Unfortunately, there is not one product division that really outperforms the market. Their enterprise service business struggles.

 HP was built on innovation. This is exactly what is needed. New products, world class solutions and a lean and efficient organization that is able to sell and deliver to a world-wide customer base. While not impossible to overcome, none of the challenges that Witmen is facing can be overcome quickly. Her  problem will be time. After her first year, she won’t be able to disassociate the company performance from her own.

You can read the article here.

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M&A in Big Pharma: Holy Grail Or Buying Time

We have seen a number of major mergers and acquisitions among pharmaceutical companies over the last few years. The question arises, is M&A the ultimate answer for Big Pharma? Is long term success in this industry an issue of size? This article will take a look at the reasons why mergers are so tempting. But it also discusses why becoming bigger is not enough.

The pharmaceutical industry is changing rapidly. There is an ever increasing demand world-wide for new treatments of diseases such as cancer, diabetes, Alzheimer’s etc. The world-wide pharmaceuticals market was estimated to be $825 B in 2010 and will break the one trillion barrier soon. This growth is driven by stronger near-term growth in the US market and the expansion of drug consumption in other parts of the world. At the same time, pharmaceutical companies are working hard to make a business model work that relies heavily on their ability to launch block buster drugs. These need to hit the market in time to finance the infrastructure necessary to invent, develop, manufacture, distribute and market new drugs.

 

Acquirer Acquire

t

€/$
Schering Plough Organon 03/2007

€11 B
GSK Reliant Pharma 07/2007

$1.65 B
Shionogi Sciele Pharma 08/2008

$1.42 B
Eli Lilly ImClone 10/2008

$6.5 B
Pfizer Wyeth 01/2009

$68 B
Roche Genentech 03/2009

$46.8 B
Johnson & Johnson Cougar Biotech 05/2009

$1 B
Dainippon Sumitomo Sepracor 09/2009

$2.6 B
Merck Schering Plough 11/2009

$41.1 B
GSK Stiefel 07/2009

$3.6 B
Abbott Solvay 02/2010

$4.5 B
Abbott Piramal’s Healthcare unit 05/2010

$3.72 B
Pfizer King Pharma 10/2010

$3.6 B
Novatis Alcon 12/2010

$51 B
Forest Lab Clinical Data 01/2011

$1.2 B
Teva Taiyo 05/2011

$460 M
Takeda Nycomed 05/2011

$9.6 B
Gilead Sciences Pharmasset Inc. 11/2011

$11 B
Dainippon Sumitomo Boston Biomedical 02/2012

$200 M

Fig 1: M&A Deals in Pharma between 03/2007 and 02/2012

Over the last few years we have seen a strong level of M&A activity across the globe (see fig 1 for key M&A deals between 2007 and February of 2012. Is M&A the Holy Grail for big pharma? Is size the ultimate path to long-term success? Without any question, one of the driving forces is the never-ending quest to improve the pipeline of these major players. The hope is that post-merger, the acquiring company will have a stronger pipeline of drugs that can be carried forward in their R&D organization. Additional benefits are an enhanced worldwide distribution system. In some cases, companies can retire plants because of redundant manufacturing infrastructure. These are the main reasons why it is so tempting for CEOs to look at M&A.

But there is a catch. It’s one thing to put an M&A deal together. It’s another to make a deal work. Overcoming post-merger integration issues is a non-trivial task. First, there are cultural issues between the two companies starting at the executive level down to the lab level. It takes years for companies to fully develop a combined culture, and sometimes it really doesn’t happen at all. Second, the promise of a solid pipeline of drugs could be overestimated. In other words: 1+1 < 2. Third, post-merger integration slows down a business considerably. The day a deal is announced people begin to worry about their future instead of being focused on the task at hand. What will happen to my organization? What will happen to me? Should I start looking for a new job? This kind of thinking happens on both sides – the acquiring company as well as the acquired one. During the integration phase, organizations spend a lot of time making it all work. Who is in charge? Who is part of the go-forward team? What should our process be?

In an industry where speed of drug development is everything, given that there is only a limited amount of time to benefit from a patent, slowing down the ability of an organization to execute is probably one of the least desired consequences of an M&A deal. It’s a hidden cost that is potentially in the billions of dollars and is not seen on any P&L statement. One thing is for sure. When the deal making is over, the ability to execute is essential. The fundamental necessity to drive execution from the board room level down to each and every project team will decide over the success or failure of a merger. Post-merger, it’s vital to gain traction quickly. Some will argue that a relentless focus on operational excellence early on would have made some of these M&A moves unnecessary.

This article was also published with Contract Pharma.

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Revenue Enhancement is Top Priority in 2012

At the beginning of this year, Salto Partners conducted a survey among business leaders. Here are the key take-aways. In contrast to the previous two years companies are shifting their focus away from survival towards planning for growth in 2012 and beyond, citing revenue enhancement as their top priority.  But there is a catch. Businesses are looking for smart (a.k.a. profitable) growth. As one survey participants put it, “We don’t throw the ball downfield hoping someone will catch it. We are running the ball for a few yards at a time. This year we are just happy that there is a game.”

Over 60% of the surveyed say that their company possess as much or more cash today as three years ago. A majority of the survey participants expressed ongoing concern about the threat of a sovereign-debt default in the euro zone. Similiarly, the majority of surveyed companies is still concerned about the possibility of a double-dip recession. Government inventions are seen helpful in the following areas:

1. increase investment incentives,
2. cutting taxes and
3. reducing regulatory burdens

A key take-away of the survey is that companies see themselves proceeding cautiously in the next 12 to 36 months. The still fairly high level of geopolitical uncertainty are resulting in the search for smart growth. 

Here are some key priority areas for companies looking for growth:

1. investing in IT infrastructure and better processes
2. mergers and acquisitions (M&A) and,
3. entering new markets, notably new markets in the Asia-Pacific region

On the plus side, there is a shift in focus compared to 2009 and 2010. Businesses are beginning to cautiously looking for top-line growth. We will discuss more findings over the next few weeks.