BMI View: In line with our long-standing view, merger and acquisition activity targeting Irish pharmaceutical firms has remained intense in H115, while this trend is expected to continue over a multi-quarter horizon a gainst a backdrop of strong fundamentals and Ireland's government policies to attract foreign investment in the pharmaceutical sector . R ecent acquisitive trends are illustrated by ongoing merger bids between Mylan, Perrigo and Teva, as well as Actavis ' acquisition of Allergan, of which the outcome will likely reshape the global generic industry. Meanwhile, strong recovery of the Irish economy, diminishing unemployment and rising consumption pose upsi de risks to our pharmaceutical and healthcare sector forecasts.
Headline Expenditure Projections
Pharmaceuticals: EUR2.39bn (USD3.20bn) in 2014 to EUR2.35bn (USD2.58bn) in 2015; -1.7% in local currency terms and -19.3% in US dollar terms. Forecast revised upwards from last quarter.
Healthcare: EUR14.75bn (USD19.76bn) in 2014 to EUR14.88bn (USD16.37bn) in 2015; 0.9% in local currency terms and -17.2% in US dollar terms. Forecast revised upwards from last quarter.
In Q315, Ireland's Risk Reward Index score remains at 58.7 out of 100, ranking it 14 out of 15 countries in Western Europe in terms of attractiveness to pharmaceutical investors. Ireland's score is driven by high spending per capita on medicine (spending per capita score 8.4 out of 12) and low industry and country risks (patent respect score 6.3 out of 7 and business transparency score 1.9 out of 2), but dragged down by a small market size (market expenditure score 10 out of 20) and weak dynamism (sector value growth score 0.0 out of 20).
Key Trends And Developments
US-based pharmaceutical company Alexion will build a EUR450mn (USD507mn) biologics manufacturing facility in Blanchardstown, Dublin, the firm's first biofacility outside the US. The facility will support the production and distribution of Soliris and the company's pipeline of biologics medicines (PMLive). Alexion expects to create around 200 additional full-time jobs upon completion of the new facility, taking the company's total headcount in Ireland to around 500 out of a worldwide total of approximately 2,400. Since 2013 the company has spent around EUR130mn (USD146.18mn) at its Athlone and College Park site in Blanchardstown, while the new manufacturing facility is expected to be operational within four years.
OPKO Health acquired EirGen Pharma, a specialty pharmaceutical company focused on the development and commercial supply of high potency, high barrier to entry, pharmaceutical products for sale in global markets around the world. High potency drugs such as those used for cancer chemotherapy are typically unsuitable for manufacture in normal multi-product facilities due to cross contamination risks. To date, EirGen and its commercial partners have filed 10 product applications with the Food and Drug Administration and five each in Europe and Japan, and the firm has a strong research and development portfolio of over 20 niche, high barrier to entry drugs, which is expected to enlarge in the medium-term thanks to access to OPKO's capital together with the benefits of Irish government programmes to encourage research and development.
Ireland-based Fountain Healthcare Partners secured EUR15mn (USD15.88mn) from Allied Irish Banks (AIB) for its dedicated life-sciences venture capital fund. AIB is investing in the Fountain Healthcare Partners Fund II, which will increase the size of the fund to EUR103mn (USD109mn). The fund, launched in January, will primarily focus on specialty pharmaceuticals, biotechnology, medical devices and diagnostics.
Ireland-based generic drugmaker Perrigo's board of directors unanimously rejected the USD30bn unsolicited takeover bid from US-based Mylan Pharmaceuticals. The company stated that the offer substantially undervalues Perrigo and its future growth prospects (Biospace). Mylan made the cash-and-stock transaction, valued at USD205 a share, a 25% premium to the company's trading price, on April 8. According to a report by Reuters on April 21, Perrigo was set to reject the offer as Mylan was up against an unsolicited offer made by Israel-based drugmaker Teva Pharmaceutical of around USD40.1bn, in an USD82 a share in cash-and-stock deal, which is 23% above Mylan's closing price on April 16. Mylan is more interested in pursuing an acquisition of Perrigo than it is of being acquired by Teva, and Perrigo's rebuttals so far come down to finding the right price. Ordinarily, Mylan's attempt to acquire Perrigo would ultimately be successful, but Teva's interests are complicating this. The battle unfolding is of a size and scale not seen before in the generic industry; the outcome of the contest could reshape the global generic industry in 2015.
Ireland is seeking to attract more Indian pharmaceutical companies, such as Dr Reddy's and Lupin, to set up manufacturing plants in the country by offering them appealing tax incentives, reports the Economic Times. The country has already convinced some Indian drugmakers such as Ranbaxy, Wockhardt and Reliance Life Sciences among others. Ireland is currently home to the manufacturing plants of eight out of the top 10 global drugmakers such as Pfizer. The country attracted six investments from India last year and is expecting at least eight investments this year, said the Investment and Development Agency (IDA)'s Director for India business, John Kilmartin (the Economic Times).
BMI Economic View
Ireland's economic recovery will remain strong in 2015, outpacing most of the eurozone. Improving conditions for households means private consumption will be the main growth driver over the coming quarters, although the recovery will be relatively broad-based given recovering external demand and the government loosening the fiscal reigns.
BMI Political View
Although the increasingly fragmented Irish political system is clouding the outlook for the 2016 election, recent developments suggest limited chance of a potentially destabilising 'grand coalition' being formed or opposition Sinn Fein playing a role in the next coalition government. The outcome of the election will partly depend on the ability of the ruling Fine Gael/Labour coalition to take credit for country's strong economic recovery. We think the coalition will frame the election as a choice between economic prosperity and instability, and between the difficult choices of governing and unrealistic promises of populism.