“Vaccine nationalism” is turning the search for a Covid-19 cure into an arms race, which will ultimately damage the economy and public health, experts have warned.

Despite these warnings, John Rountree is optimistic about vaccine access. John told CNBC, distribution and supply challenges are “much more solvable” than actually finding a vaccine that works and “we’re a long way” from having an effective vaccine.

“Equitable access requires collaboration between pharma companies, governments, and patient-centric organizations, but I don’t have any doubt that it will be solved,” John said via telephone. “Pharma companies have interests in profitability for their shareholders. Governments have interests in having people treated. We’re all in the same game, so it will happen.”

Likening the vaccine development landscape to the space race of the 20th century, John warned that vast government investments would not miraculously pave the way to an effective vaccine.

“Politicians can put aggressive timelines in, and it lends itself to putting a man on the moon,” he said. “In the end, you’re dealing with biology, which is a much more difficult problem than the engineering challenge of sending a man to the moon. And biology doesn’t follow timelines.”

There are currently at least 160 potential Covid-19 vaccines being tested around the world, according to the WHO.

In light of the announcement of AstraZeneca’s preliminary approach to Gilead Sciences, John Rountree, was invited on CNBC to discuss the merits of the merger.

John discusses the merits of potential collaboration, highlighting existing collaborations in the industry, including AstraZeneca’s collaboration with The University of Oxford.

Considering the potential merger, John sides with analysts to question the merits of such a deal.

One of the big concerns of a mega merger is the potential impact on innovation, and John discusses some of the pitfalls R&D might face if the two companies do merge.

Discover our insight in R&D and how companies can achieve breakthrough innovation.

AstraZeneca has made a preliminary approach to Gilead Sciences.

The suggestion of a blockbuster pharma merger might be a sign that the industry is getting back to something resembling business as usual. Even successful Covid-19 treatments or vaccines are unlikely to be big moneymakers, meaning drugmakers face the return of old pressures to gain scale and boost innovation, or risk becoming targets.

Speculating on the deal, John Rountree, said “Perhaps AstraZeneca has a belief that antivirals are going to be a much more important domain than previously believed, owing to the recent Covid-19 tragedy, and snapping up one of the clear leaders in that field will give it a platform for future growth beyond oncology”

It will be interesting to see what AstraZeneca offers and whether pharma M&A is still too expensive.

In light of the announcement of Novartis’ and Pfizer’s Q4 results, John Rountree, was invited on CNBC to discuss innovation in the pharmaceuticals market.

John highlights the continued strategic drive towards traditional innovation, which helps companies avoid the dangers of being a “one product company” and allows them to protect themselves from the risks of patent expiry.

Traditional R&D is not the only innovation Big Pharma is pursuing, with cell and gene therapy being important future technologies that companies must be present in, but are still in the early stages technologically and commercially.

Pharma companies are compelled to innovate in order to survive, and the rewards for successful innovation are substantial. Innovation as a topic we have always focused on and one that companies should consider carefully.

As Big Pharma continues to innovate, John draws attention to the positive correlation between companies investing in innovation and their stock prices. Investors clearly believe in R&D and so do we.

In light of the announcement of Novartis’ and Reckitt Benckiser’s (RB) Q3 results, John Rountree, was invited on CNBC to discuss how their differing approaches affect their Q3 results respectively.

John highlights the continued strategic drive towards an innovative medicine focus at Novartis, with the spin off of Alcon earlier this year and GlaxoSmithKline’s acquisition of Novartis’ stake in their Consumer Healthcare Joint Venture, in 2018.

John touches upon several of the challenges at RB and how its Consumer Health focus is a tougher business model, with tighter margins and higher competition in local markets.

Margins are a topic that is in increasingly on the minds of pharma executives and an issue we have highlighted before.

In terms of where the two companies are on their journey towards strategic focus they again differ. RB has appointed a new CEO and CFO in 2019 but the change in leadership will likely only be felt in the medium to long term. This is where Novartis is now seeing rewards, as the 2017 appointment of CEO Vasant Narasimhan now begins to take effect and his strategic focus delivers results.

Sanofi has appointed a new CEO, Paul Hudson, to revive its slumping stock price and a pipeline that’s been slow to deliver.

Hudson highlighted a few of the areas he will focus on at Sanofi cancer, RSV vaccine and China opportunities, and Bloomberg asked Novasecta for their opinion on how he can achieve his goals:

“I suspect they will double down on specialty care because that’s where the growth is most likely going to come from, that requires making some tough calls, probably doing some M&A and continuing to streamline R&D.”

It will be interesting to see if Hudson can translate his success at Novartis to Sanofi and what lessons can be learnt from the MidPharma sector.

The recent announcement of pharma’s latest mega-merger has not been received well by many people, except perhaps Allergan Shareholders. The deal has been highlighted as another defensive mega-merger to protect against patent expiry.

In light of this the Financial Times asked John Rountree for his views on the deal:

“Continuing to boost top-line growth when patents are expiring on key drugs is very difficult to achieve . . . but it will not stop companies from trying, it is a dynamic that means the merits of such megadeals do not always receive adequate scrutiny.”

Pharma M&A is a topic we have discussed frequently and how greater value can be found partnering and strategic collaborations.

With the announcement of the latest pharma mega-merger, AbbVie’s move to buy Allergan for $63bn, John Rountree, was invited on CNBC to discuss the deal and the continuing trend of pharma mega-mergers.

John questions where the value is in the deal, with Allergan’s shareholders being the only likely benefactors. He highlights the defensive nature of the move and how it is proven that mega-mergers in pharma do not often bring benefits to the acquirer, as they become unfocused, lose innovation, lose growth and ultimately end up in trouble.

Pharma M&A is a topic we have discussed frequently and how greater value can be found partnering and strategic collaborations.

In light of the most recent decision from a US court, ordering Bayer-owned Monsanto to pay more than $2 billion in damages to a couple that sued on grounds the weed killer, Roundup, caused their cancer, Deutsche Welle asked John Rountree for his views on whether Bayer could survive further lawsuits and what they can do to limit the impact on the company.

Watch the full interview here

Discover John’s previous comments on Bayer here

AstraZeneca’s Q1 2019 results were released today (26th April) with their oncology portfolio helping drive profits past analyst’s expectations. Bloomberg asked Novasecta for their thoughts: “They’ve got a whole raft of approvals in the pipeline, their transition from big pharma to big biotech is happening.”

The new initiatives of Pascal Soriot are clearly bearing fruit with relatively high investment in R&D, a reorganisation of their R&D structure, high deal volume (2nd highest over the last 5 years in the Global 100) and focus on increasing R&D programme success, from 4% to 20%.

As the timeline for Brexit shifts and no clear statement on the future of trade, Bloomberg, revisits the perennial question for pharma of supply. They highlight Novo Nordisk keeping an inventory of insulin at more than twice normal levels and asked for John Rountree’s opinion on this crucial topic: “Keeping extra supplies on hand is only one of the challenges. Brexit raises questions about new investment in manufacturing in the U.K. and bringing talented people into the country.”

Read the full article here

With the publication of the Novasecta Global 100, John Rountree, was invited on CNBC today to expand on some of the trends in our report, and in particular how attitudes towards M&A are changing in the sector and for investors.

John highlights the low revenue growth for 6 of the top 10 companies and how mega-mergers are no longer the solution to growth, highlighting the recent deal between BMS and Celgene. Instead he underlines the importance of smaller collaborative partnerships, such as the alliance between Regeneron and Alnylam, which allows both companies to focus on their strengths whilst utilising the support of their partners. Since our inception we have held a firm belief in the value of strategic collaborations.

CNBC also delve into the topic of whether tech giants will eat away at various segments in healthcare; to which John emphasises the difference in the approaches of tech and pharma and why tech companies’ consumer focused platforms might gain good traction in the healthcare sector.

Follow the links to read the Novasecta Global 100 or to learn more about achieving growth through strategic collaborations.

John Rountree was asked to comment on the recent share price fall of Bayer in the light of litigation issues with its now subsidiary Monsanto. Bayer made an unsolicited bid for Monsanto in May 2016, then took more than two years to close the deal, a period in which its share price remained broadly flat. Since closing the deal in June 2018 its share price has now fallen by a staggering 40%.

Now with the benefit of additional hindsight it’s even clearer that this type of mega-merger is not suited to pharmaceutical companies. Pharma leaders are increasingly recognising the more powerful benefit of focus and collaboration, and in turn investors have become increasingly wary of mega-mergers. We will be exploring this theme in more depth in our inaugural Global 100 report to be published next month.

To view the full Bloomberg article, click here or for our views on M&A here.

Novasecta’s Managing Partner, John Rountree, was asked by Reuters to reflect on Christophe Weber’s, CEO of Takeda, comments on the cuts to R&D after their deal with Shire:

“They are cutting quite deep in R&D and it is not clear if the amount of money they are saving is going to be beneficial or harmful. Merging R&D is never easy. There are going to be lay-offs and that creates uncertainty and disruption and sometimes the best talent just leaves.” To view the full Reuters article, click here.

This is not the first time John’s opinion has been sort on the deal having previously been asked for his thoughts by CNBC.

Novasecta’s Managing Partner, John Rountree, was asked by CNBC to comment on Takeda’s takeover of Shire, in which he reflects on “M&A becoming very expensive in pharma” and how the “innovation problem drives M&A in the sector”, both issues Novasecta has previously highlighted.

To read our insight into the cost of pharma M&A click here or for R&D innovation click here.

Novasecta’s Managing Partner, John Rountree, was asked by Bloomberg to comment on GSK pulling their bid for Pfizer Consumer-Health Unit. John commented “this tells you about big pharma’s attitude toward consumer health — the brutal reality is that consumer health is not as profitable as the pharma business. There is something inherently unattractive about consumer health from a profitability point of view.” Elaborating John added “There is a tremendous chance of something big, while consumer health offers the potential for cost savings, it doesn’t offer the same upside.
To view the full Bloomberg article, click here.

Novasecta’s Managing Partner, John Rountree, was asked by Bloomberg to comment on the recent Sanofi and Celgene deals. Reflecting on our experience with listed pharmaceutical companies, John commented “Pharmaceutical companies are increasingly turning to specialty areas like hemophilia because of the opportunities for higher prices.” and that “It’s all about finding niches. Pricing for cell and gene therapies remains more uncertain than some other new treatments”. For more on Novasecta’s perspective on the high prices paid to execute M&A click here. To view the full Bloomberg article, click here.

Novasecta’s Managing Partner, John Rountree, was asked by Bloomberg to comment on the threat AstraZeneca poses to GSK. John highlighted the approach of AstraZeneca’s Chief Executive Pascal Soriot commenting “Soriot took a very bold approach, saying it’s got to be about innovation and the pipeline, which means we’re going to have to take some risks. That also puts you on a more volatile path.” This is not the first time John’s opinion has been sort on the threat GSK feels from AstraZeneca, previous comments in the Daily Telegraph emphasise their different approaches to R&D. To view the full Bloomberg article, click here.

Novasecta’s Managing Partner, John Rountree, was asked by Bloomberg to comment on the perils of pharma M&A in an article that investigated the delays in development of AstraZeneca’s ZS-9 product after AZ had acquired ZS Pharma. Reflecting on our experience with listed pharmaceutical companies in general rather than the specifics of the AZ deal, John commented “The pressure to do a deal is immense” and that “If it looks right, the message on due diligence may just be, ‘just make it work because we’re going to do this deal.’”. For more on Novasecta’s perspective on the high prices paid to execute M&A click here, and on the value of partnerships as an alternative to M&A click here. To view the full Bloomberg article, click here.

In an article in the Sunday Telegraph titled “How do you turn world-leading British science into medicines?”, John Rountree was quoted in the section of the article that referred to the “Brexit elephant in the room”.

Echoing Pascal Soriot’s comments in the article that all AstraZeneca’s new capital investment was on hold due to the current uncertainty, John commented that with supply chains across different countries, if there are extra barriers and paperwork clearly that will be a deterrent to inward investment into the UK.

While it’s great to see the government and industry and academia getting together for initiatives to create great medicines, the direction that is being taken for Brexit is clearly not helpful. Pharmaceuticals is a collaborative industry, and as such the common regulations and relatively frictionless movement of people and trade within the EU has undoubtedly benefited the industry and patients to date.

With GlaxoSmithKline’s new CEO Emma Walmsley presenting her first quarterly results since taking on the new role, investors were seeking signs of her intentions for the company. A renewed focus and attention to the pharmaceuticals business were the highlights, including the planned divestment of selected R&D and on-market assets as well as a strategic review of the rare diseases unit.

In an article in The Daily Telegraph, Novasecta Managing Partner John Rountree noted that “GSK spends a lower proportion of its total pharmaceuticals revenue on R&D, at 15.4pc, than its main FTSE 100 rival AstraZeneca’s 27.6pc”, and that “It all emphasises the importance the new GSK executive team puts on stability and long-term performance, rather than high-risk and high-reward R&D.” He further added that “It does not fit as well with a view that GSK will be a magnet for developing game-changing pharmaceutical R&D innovation.”

Regarding the rare diseases unit, John’s view was that GSK’s potential sale of its rare diseases activities “will ultimately be good for patients”, explaining: “Investors that are more interested in high-upside with risk can take on this unit and give it more focus and space than is currently possible under GSK.”

Brian McGee, Principal at Novasecta, provided his perspective on the recent bids by private equity firms Cinven and Advent on German generics firm Stada in an article in Scrip. Brian stated that “Cinven have a reputation for value creation through industry consolidation, where an initial investment acts as a platform to which other complementary businesses can be booted on”. An example of this that Brian mentions is their acquisition and combination of Labco and Synlab in the summer of 2015, creating the largest clinical laboratory services company in Europe.

Brian goes on to say that as a result of know-how gained from recent investments in the space, Advent “are well positioned to extract value from the Stada business. Equally partnerships or a merger with existing portfolio companies may make sense. So I imagine that the eventual deal for Stada will now come down to a combination of final price, the quality of the post-investment business plan, and an endorsement from management. It could ultimately go to either party.”

To read the full Scrip article, click here.

John Rountree, Managing Partner at Novaescta, was asked by Scrip to comment on Sanofi’s recently reported on-target Q4 results and their outlook for the future. While these results likely reassured investors and analysts that their strategic plan is on track, the real test for Sanofi is yet to come, with multiple critical catalysts expected in 2017. These include the launch of Dupixent (co-developed with Regeneron) in atopic dermatitis, as well as the conclusion of a patent infringement case filed by Amgen resulting in an injunction on sales of Sanofi’s Praluent. Additionally, after missing out on acquiring Medivation and Actelion, M&A is likely top-of-mind for Sanofi’s leadership.

John commented that Sanofi are “stable, profitable, but that said, their overall performance is flat, posing the question: where’s the growth going to come from? There’s a lot riding on Dupixent. And while Genzyme and vaccines are doing well, the bulk of the business, representing some 70% of it, aside from Genzyme and vaccines, is either flat or down from previous performances. That’s a big chunk of their business. And it needs to be rejuvenated. Sanofi’s R&D as a percentage of sales in 2016 was 13.6%. That’s pretty low compared with some of their peers. Compare it with AstraZeneca PLC, which okay it’s a pure-play pharma but they’re investing 26% of sales into R&D, while Celgene Corp. is investing 22% of sales into R&D, while GSK [GlaxoSmithKline PLC] ‘s proportion is 16.2%.”

On the M&A front, John added that Sanofi “should resist pressure to do M&A; I don’t think that’s what Sanofi need at the moment. M&A is very expensive, and Sanofi already have a lot of debt. It just increased by €3.7bn during the past year, bringing it now to just under €17bn.” He doesn’t think such a move would be consistent with investing for the future, which is what Sanofi needs. “They’ve really got to keep working on making their R&D engine deliver”.

To read the full Scrip article, click here.

The recent J&J-Actelion deal is great for the pharmaceutical industry, reminding us all of how valuable the capabilities to continuously convert drug discovery activities into fantastic medicines really are.

As well as appearing on CNBC on the morning of the deal (video below) to explain this perspective, John Rountree was extensively quoted in Scrip’s analysis of the J&J/Actelion deal. John described Actelion’s strategy as “a great example of creating a structure to defragment R&D – companies that bring together science, commercial insight and medical skills on a continuous basis, like Actelion did and the R&D NewCo now will, rather than one-shot virtual biotechs”, adding “It will also power up Actelion’s commercialization by having a large and well-funded owner that has access to the important US capital market.”

John also raised the broader implications for the industry, saying “This case really challenges how to think about the value of R&D. It’s a great wakeup call to the industry of the value of really good research and development. And what it shows is that stock market analysts have traditionally not valued discovery assets or discovery capabilities within an organization, because it’s too far away timewise and it’s difficult to affix financial numbers to. The people who really can do strong drug discovery can free the drug discovery from the constraints of being tied to only certain therapeutic areas. That has been the ethos of Actelion – they will go out after where the mechanism of discovery takes them, which is a very powerful ethos in today’s pharmaceutical industry.”

John Rountree, Managing Partner at Novasecta, was today asked to provide commentary in an article in The Telegraph on the challenges of recruitment in the pharmaceutical sector following the UK’s vote to leave the European Union. John stated that “we’ve been hearing quite a lot of anecdotal evidence that [pharmaceutical executives are] not so much worried about the technicalities of labour restrictions, such as filling in visas, but about a general feeling among their peers that they are not very welcome in Britain. People are looking at their futures and saying: ‘Is this a country I will be welcome in and where I will raise my family?’ I have heard examples of people that have turned down jobs because of this kind of malaise.”

John goes on to say that “R&D is about brains, motivation and ambition of your people, so when more than 50pc of them are EU citizens, that clearly has an impact on productivity. All of the UK-based companies I spoke to said they were having to reassure employees that they are still important to the organisation. One senior person was in the middle of a decision cycle. The company was European and looking at its UK footprint in terms of R&D. It has originally considered expanding its development activities here, but it had become less attractive to do so and the company may well revert to building development capacity in its home country of Italy.”

Novasecta’s Managing Partner, John Rountree was asked by Bloomberg to comment on the most recent development for Actelion, that it “has entered into exclusive negotiations with Johnson & Johnson regarding a possible strategic transaction”. He said that J&J, of all the big pharmas, is the best one for Actelion, as it would give the Swiss company access to the U.S. capital market and may allow Actelion to maintain at least some independence. John added that J&J perhaps might be more hands off than some other potential acquirers. To view the full article, click here.

John Rountree provided his earlier thoughts to the Financial Times, a major UK financial newspaper, on the initial potential Actelion takeover by J&J. Amidst reports of Actelion fighting to keep its independence in the proposed deal, John said that “there is still a great deal of value in remaining independent, but they could do a deal in the way that Roche and Genentech [the $47bn deal in 2009] have done. It could be win-win.” To view the full article, click here.

John was also quoted in a Reuters article discussing J&J’s attempted takeover of Actelion. In the article, John states that “a structured transaction allowing Actelion to benefit from J&J’s scale without losing its independence could work for both sides.” He goes on to mention that “one option might be for J&J to mimic Roche, which bought 60 percent of Genentech in 1990, leaving it to operate independently, before acquiring the rest of the biotech in 2009.”

Interestingly, Actelion tied for third in the MidPharma performance rankings in Novasecta’s 2016 European MidPharma Report, perhaps foreshadowing its appeal as a takeover target.

For a more general take on partnerships versus M&A in the pharmaceutical industry, click here.

John’s thoughts were also reported in a Pharma Letter article, which can be read below:

Since Swiss biotech Actelion (SIX: ATLN) confirmed that it was the subject of a takeover bid by US health care giant Johnson & Johnson (NYS JNJ) on Friday, the eyes of the pharma world have been firmly fixed on the Basel­-based company.

Shares in Actelion rocketed by an initial 17% on the news on Friday, and on Tuesday they surged up a further 10% to close at 209 Swiss francs, just off a record high, following news of a higher offer, which was reported by Reuters.

Actelion apparently prefers a deal which would see it combine with part of J&J while remaining an independent company, though the US firm favors a takeover and its stance would appear to be confirmed by the higher bid reports.

Despite the reported resistance from Actelion, it might be the company that gains more from the two out of a takeover, said John Rountree, director of pharma strategy specialists Novasecta.

Mr Rountree said that the temptation to over­pay for successful companies was one of the impacts of the new era of cheap capital since the financial crash.

“The prices pharma companies are paying for research and development (R&D) assets and for companies with R&D assets have been rising of late,” he said. “This will mostly benefit the shareholders of companies that are acquired rather than vice versa.

“Actelion’s founders including chief executive Jean Paul Clozel and his wife Martine are right to be exploring ways to monetize their share in a frothy market for pharma acquisitions. If they can manage this while retaining independence, they will do well.”

Mr Rountree described Actelion as a highly successful ‘mid pharma’ that has benefited from its independence and focus.

“Unlike many bigger pharma companies it has developed and commercialized its own portfolio rather than resorted to buying it from biotechs or other pharma companies when the pipeline was empty.

“European mid pharmas have been outperforming big pharma on many dimensions, so it is not surprising that big pharma want to acquire them.”

Not many such European mid pharma companies are available to be acquired – except possibly at astronomical prices – because of foundation or family ownership and control, with Netherlands­-incorporated drugmaker Mylan (Nasdaq: MYL), for example, paying twice the pre­-deal share price for Meda, a European mid pharma previously with major shareholding held by the Olsson family, to acquire it earlier this year.

If Actelion were to be acquired, Mr Rountree said that J&J would be the ‘least worst’ big pharma company to take it over.

“J&J has a relatively decentralized and diverse business model that copes better with diverse companies than the likes of Pfizer (NYSE: PFE),” he explained. “A structured transaction allowing Actelion to benefit from J&J’s scale without losing its independence is more likely to create value for both parties than an outright acquisition.

“The story of Roche­-Genentech, where Roche (ROG: SIX) took 60% of Genentech in 1990, left it to be more or less independent, then the rest of the shares 19 years later, is a helpful precedent, particularly as many of the Actelion executives are ex­-Roche.”

Uncertainty over the deal continued to affect Actelion’s share price on Wednesday. It had dropped by 2.6% to 203.50 Swiss francs by lunchtime.

It was recently reported that pharmaceutical companies Pfizer and Flynn Pharma may face a damages claim from the NHS related to overcharging, following their fine for substantially increasing the price of phenytoin sodium capsules. In a front page story in the Business section of the Daily Telegraph on this matter, John Rountree, Managing Partner at Novasecta, commented that the entire drug industry was “under massive scrutiny” from regulators over the controversial issue after several high-profile cases in the US. He went on to say that “this is not so much a warning shot across their bow, but a reinforcement that they need to be on their toes. A few high-profile cases have tainted the whole industry.”

The Telegraph has put out an article reporting that Sweden is vying to be the home of the European Medicines Agency (EMA), currently headquartered in London’s Canary Wharf, once the United Kingdom leaves the European Union. John Rountree, Managing Partner of Novasecta, commented in the article that “if Britain really does leave the EU, the message we get from Continental Europeans is very clear that the EMA cannot remain in London, it is a fundamentally an EU institution.” He goes on to state that “some pharma executives in the UK are perhaps still hoping that there will be some way of arranging it to remain.” To view the full article, click here.

It was recently announced that, to make up for the loss of EU funding for R&D post-Brexit, Theresa May has pledged to increase the UK’s investment in science and technology by £2 billion per year by 2020. In an article in Reuters, Novasecta, said that it is only a “small step” towards calming Brexit nerves in the industry. Putting the investment in perspective, we state that “it is, for instance, significantly smaller than the 26 billion pounds the U.S. government invests in the National Institutes of Health every year, and therefore may not make the UK as competitive as hoped.”

 


In an article in The Telegraph regarding GSK, Novasecta Managing Partner John Rountree commented that, for them, “Brexit is both help and hindrance. Sterling’s weakness gives some short term benefit. However longer-term Brexit creates material uncertainties for regulation, supply chain, packaging and manufacturing, that depending on the eventual EU exit may be very costly.”

 

In terms of Bayer, in an article in Bloomberg, Principal Brian McGee stated that “the story that is being put through by Bayer is, ‘look how great pharma is doing’ and they’ve in some ways underestimated the market sentiment, which is now valuing them as three big businesses. You can’t have two businesses that aren’t exciting, that aren’t doing well, masked by the pharma business, which is doing extremely well.”

John Rountree, Managing Partner of Novasecta, was recently quoted in the Sunday Telegraph, one of the UK’s leading Sunday newspapers. For an article entitled “Ministers snub life sciences industry’s report on Brexit” John was asked for his perspectives on comments received by the newspaper from UK Government sources that a recent industry report “was basically the industry whining about Brexit and it was not very constructive and has gone straight into the hopper”.  The UK EU Life Sciences Transition Programme Report that was referred to was issued in September based on work co-chaired by the CEOs of UK Big Pharmas AZ and GSK, and concluded with four priority areas: Innovation (keep access to EU funding for science), Commercial and Trade (maintain free trade with EU), Regulation (maintain alignment with the EU regulatory system), and People (facilitate ease of movement for talented/skilled people).  John commented that the points in the report were “fairly non-controversial”.  After all, it’s hard to find a pharma business that does not like state funding for science, free trade, a simple regulatory system and easy access to talent.  For our initial and more thorough take on Brexit post-vote, click here.  We’ve also just completed a series of interviews with 20 top European pharma executives to ascertain their thoughts on what to do about it, which we will publish soon.

Brian McGee, Engagement Manager at Novasecta, was recently quoted in a number of news sources on GlaxoSmithKline’s decision to appoint Emma Walmsley as Chief Executive:

In these articles, Brian comments that Walmsley is an “inside-outsider” who understands how to effectively operate, but with a valuable external perspective on the business through years working in fast-moving consumer goods. He states that this background should allow her to bring a fresh and more commercially astute perspective to investment decisions.

John Rountree, Managing Partner of Novasecta, was recently quoted in The Times, a major UK newspaper. In an article discussing Shire, a highly successful mid-cap pharmaceutical company headquartered in Ireland with strong growth and a high share price rating, John offers a number of cautionary messages. He asserts that Shire is making the risky transition from mid-cap to Big Pharma, and that the complexity of the business and the research pipeline is now more of a concern than it was after Shire’s previous deals, such as the $6 billion purchase of Dyax last year. John states that “they can say they have done integration very well but those have been $4 billion to $6 billion deals: this is $32 billion. They have got to prove themselves. They’re talking about leverage, synergies and savings. This has become a new game.”

John goes on to comment on pricing pressure from governments, insurers and health service providers, another concern for Shire in the long run as it is becoming increasingly dependent on oncology and rare diseases after the Baxalta acquisition. “Rare diseases and oncology are almost by definition high-price markets. How long can it last in the US?” he was quoted as asking.

John Rountree, Managing Partner of Novasecta, was recently quoted in the Sunday Times, the UK’s leading Sunday newspaper. In an article entitled “How to Make Our Scientists Very Mad” John offers commentary on the risks of Brexit to early-stage biotech companies, stating that the potential for decreased funding (from Horizon 2020, for example) may reduce the attractiveness of life sciences “hubs” such as London, Cambridge and Oxford. The article goes on to say that diminished research output of academia and biotechs from these hubs, combined with the likely relocation of the European Medicines Agency (EMA), may delay new medicines reaching British patients by two to three years.

Novasecta provided perspectives for The Economist newspaper on signs of a new wave of strategic collaborations between pharma companies as an alternative to expensive and often wasteful M&A. Our perspective is that the recently announced collaboration between Merck and AstraZeneca in immuno-oncology is great for patients and the industry: working together rather than simply acquiring a company brings out the best in each company. Over the years we have been proactively catalysing such collaborations for many of our consulting clients as they seek better ways than M&A to build their R&D pipelines, as described in our white paper“Better Partnerships, the Alternative to M&A?”

Novasecta was cited several times in The Economist article, first John Rountree commented that the recent disappointing results from AstraZeneca’s Mystic trial “suggest it is still early days for immuno-oncology R&D, not that there is something wrong with the technology.” Then our research earlier this year into expensive M&A and the increasing trend in revenue multiples was cited, and John added later in the article that “working together is an effective way to mix laboratory talent and to bring medicines to patients”. To view the full article, click here.

As Bayer’s troubles continue, Die Zeit interviewed John Rountree to understand what is going on at Bayer and how they should proceed.

Download the article in German above or read the English translation below:

“All that just distracts”
    Bayer is fighting the lawsuits over the plant protection product Round-Up. But that hides the real problems of the group, says John Rountree.

    ZEIT: Mr. Rountree since acquiring the Agrochem Group Monsanto has lost Bayer 150 billion euros in value, threatening billions in billions due to claims for damages because customers claim they have gotten cancer from the use of the crop protection product Round-Up. Was that worth it?

    Rountree: Great scientists work at Bayer. But like many other pharmaceutical companies, Bayer is less good at maintaining a strong and trusted public image. The legal proceedings concerning the active substance glyophosate, which was included in the weed killer round-up, are a burden for the everyday business. Within the group, only a small group of employees take care of it, especially from the legal department and the executive board. But every Bayer employee knows about it and follows the proceedings. In this respect, a shadow hangs over the company. It is easy to imagine what the board meetings are talking about: legal risks, the current status of procedures and possible outcomes. It’s not so much about issues like growth, innovation, research, about things that drive a business forward, but about how the process goes. No matter how the proceedings go, Bayer will not break. But the procedures damage the reputation. It does not make it easier to find new talents. These are all side effects that will show in the performance in a few years. They do not settle down immediately. In that sense, the Monsanto acquisition is a burden for Bayer.

    ZEIT: So, was it wrong to want to become one of the largest agrochemical companies in the world?

    Rountree: At the moment of the takeover it seemed like no alternative. There was a consolidation process in the agricultural sector. Dupont and Dow Chemicals merged into Dow Dupont and Chem China acquired Swiss manufacturer Syngenta. As you thought at Bayer, you will soon have nothing to report, if you stay small. As such, the Monsanto acquisition seemed the right move. It was about economies of scale and cost reduction. It was about defending the status quo. But: the problem with the matter was already at that time, that one did that within the group structure: one did not separate out the own agricultural division from Bayer and a new enterprise. Now you have the problems: Because Bayer is actually a pharmaceutical company and the agricultural sector is a completely different business. It will not be easy for the board and management to bring that together.

    ZEIT: Before that, Bayer was also a company that was active in all these sectors. Why should this not work?

    Rountree: First of all, there are the customers. In the pharmaceutical sector, they have three types of customers: patients, doctors and those who pay, insurance companies or governments. You have to be prepared for that and you have to work with this not very simple constellation. In the agricultural sector, the customers are completely different: it is the farmers worldwide. This market is a completely different one. And as a corporation, you always have to think about the customer. So it would be better if the board focused on one thing than trying to bring pharmaceuticals, consumer brands, agrochemicals and veterinary medicine under one roof. It becomes very difficult to concentrate on the necessary things.

    ZEIT: The broader a company is set up, the more stable it is. In that sense, is not that wrong?

    Rountree: Man can see that as a sign of stability. But one has to wonder if it would not be better to have a board that only cares about pharmaceuticals and a board that deals only with agrochemicals. You could work much more concentrated. In addition, Bayer already has problems today. Bayer’s profit margin was 10 percent in 2018, which is the worst of all major pharmaceutical companies. Then sales general and administrative overheads at Bayer are exceptionally high at 39 percent of sales. In addition, debt has risen dramatically due to the Monsanto acquisition.

    ZEIT: But there are savings in the millions by the acquisition …

    Rountree: … the latter is a matter of expectation. Let’s put it this way: Bayer was not overly ambitious about these goals. And the high debts are a heavy burden on the management. If you have to save and the costs have to be reduced to pay the debts, then it makes investment in growth difficult. Even strategic investments are no longer so easy. High debts dampen one’s own ambitions. Of course, it can be good for a company to cut its own costs, to clean up, to become more profitable. But if you want to invest in growth, if you want to put money into research and development, impede such austerity programs. Not only on the subject of debt, but also on the subject of profitability are competitors such as Pfizer, Johnson & Johnson or Merck are significantly better.

    ZEIT: What are they doing differently?

    Rountree: They have no agribusiness and focus on what they do well. Above all, the US companies are much less widely positioned. And that’s good with pharma: you want a board that is extremely focused and can focus on the business. An exception might be Johnson & Johnson, which are broader but have a federal structure, meaning that the individual units are more independent. In addition, few pharmaceutical companies still make large acquisitions or form mergers.

    ZEIT: How is this an advantage?

    Rountree: Instead of taking over competitors, one works rather together on projects. This has proven to be a successful strategy in the pharmaceutical industry and is a trend. Take the example of Regeneron and Alnylam. These are two independently strong science-based US biotech companies. Bringing Alnylam’s RNAi expertise together with Regeneron’s genetics expertise is a win-win for the companies and for patients. For this they cooperate as independent companies. That means both keep their culture, their ethics, their organizational structure. And they can do research without being distracted by lengthy integration process. There is no need to look for synergies, there is no need to merge departments, employees are not secretly looking for a job because they are afraid of losing their jobs – all this is missing. You can just work in peace. Both sides can learn from each other and focus on their strengths. One plus one is more than two in this case.

    ZEIT: But you have to share the profits in the end as well.

    Rountree: But you also share the research costs and without further obstacles. This is better for the future of companies. And it works not only between big and small companies but also between big and big ones. For example, Merck cooperates with AstraZeneca in the field of cancer research. Both companies want to learn from each other. And they refrain from buying one another. Imagine if both had come together: A gigantic company would have emerged, the merger would have employed and distracted employees for years. The Monsanto takeover by Bayer has been running for two years. A lot of energy is used on it, the employees and the board are distracted, meanwhile others cooperate and can do research and development without being distracted.

    ZEIT: What should Bayer do to your opinion now?

    Rountree: It’s difficult at the moment. One should outsource the agricultural sector and lead independently. Let me say it again: agrochemicals and pharma are not compatible. But at the moment this is hardly possible .. In the US, the processes are running because of Monsanto and nobody knows how they go out, there are no investors.

    ZEIT: You advise pharmaceutical companies worldwide. How much easier is it to be able to express one’s opinion without being responsible for the consequences of the business, like a board?

    Rountree: We have a different role as consultants. I feel that our job is to provoke and challenge the board and management. We need to help them to find a different perspective and to think differently so they can make the best decision they can with confidence. And in one, I have to correct you: we have a lot of responsibility, it’s a tough business and our clients won’t ask for our help if they don’t see value from it.

    ZEIT: Can you buy a pack of aspirin tablets at the pharmacy without thinking about which company made it, how it is and how profitable the pack is?

    Rountree: When I see a pharmaceutical product like Aspirin I always think about the company that made it and the amazing effort and resources that it took to get it to the point where patients can get the benefit of it.

    Bayer is a company that we have been asked to comment on several times before, to read our previous views click here