Pharma Carve-outs — How To Turn Yours Into a Success Story
Carve-outs or divestitures are top of mind for many biopharma companies as they reassess their long-term strategy and resulting internal priorities. Carve-outs are attractive as they can enable rapid, substantial cash generation and the opportunity to realign portfolios and redeploy resources, including human capital, to new areas of focus. But many fail or take a very long time to complete. In this article, we share our tips on how to execute a successful carve-out.
Carve-outs have been popular for biopharmas refocusing their growth agenda on specific therapeutic areas or modalities. For example, Takeda has raised over $10 billion through divestitures after its acquisition of Shire in order to focus on its core business and de-lever. AstraZeneca has disposed of multiple non-core assets, each worth several hundred million dollars, and Novartis, Merck KGaA and BMS have each sold whole franchises totalling several billion dollars — in China, for example, several vaccine and pharma-related subsidiaries have been divested from their parent companies.
When offloading established products, sellers can benefit from the de-risked nature of these assets and typically structure financial terms weighted to upfront payments. Figure 1 shows the upfront payments that AstraZeneca and Takeda received through divestments since 2019. This financial profile provides the sellers with the capital they need in a timely fashion — capital that can then be redeployed towards building commercialisation capabilities, enabling M&A in the core business, investing in research and development (R&D) or achieving other strategic goals.
Given the financial and strategic benefits of successful carve-outs for sellers, once biopharmas decide on pursuing the strategy, it is critical that they maximise their chances of completing the deal by taking a number of key steps.
Having worked on numerous biopharma carve-outs, we have detailed below the five key steps to maximise the chances of a successful transaction (see Figure 2).
Many carve-outs or divestments do not materialise, require multiple attempts to achieve a sale or take several years to complete. The culprit is often faulty execution rather than a change in strategic direction.
External, strategic support is valuable throughout the carve-out journey to facilitate execution and ready the asset for formal due diligence scrutiny. Specifically, we find strategic support to have the most impact in five key areas: