Contents

7 OVERVIEW

8 INTRODUCTION
8 Datamonitor Healthcare insights and recommendations
11 Bibliography

12 DIVERSIFICATION ANALYSIS BY REVENUE
12 Datamonitor Healthcare insights and recommendations
12 Prescription drug revenue makes up the majority of Big Pharma sales
14 Biologics are taking away share from small molecules
19 Bibliography

20 DIVERSIFICATION ANALYSIS BY M&A AND DIVESTMENT ACTIVITY
20 Datamonitor Healthcare insights and recommendations
20 Many factors contribute to a decline in M&A and divestments following a two-year increase
21 Deal values followed a similar trajectory to volume
23 More acquisitions and fewer divestments of non-pharma-focused businesses over time
24 Prescription pharma markets are the mainstay in M&As and divestments
29 Roche, Johnson & Johnson, and AstraZeneca: active acquirers in their focused and diversified visions
35 Merck & Co and Novartis divested several diversified assets
39 Developed markets are where Big Pharma does virtually all acquisitions
46 Bibliography

49 DIVERSIFICATION OPTIONS AND PROFITABILITY
49 Datamonitor Healthcare insights and recommendations
49 Focused, intermediate, and diversified strategies have each paid off
50 If diversifying, the best option could be devices and diagnostics

53 DIVERSIFICATION CASE STUDIES
53 Pharma-focused case studies
59 Diversified case study
64 Intermediate case studies
73 Bibliography

77 HEALTHCARE LANDSCAPE OVERVIEW
77 Prescription branded pharmaceuticals market
82 Devices and diagnostics market
87 Health insurance market
90 Over-the-counter/consumer health market
95 Generics market
98 Retail pharmacy market
101 Hospitals market
104 Pharmacy benefit management market
107 Pharmaceutical wholesaler market
110 Animal health market
113 Bibliography

121 APPENDIX
121 Scope
121 Methodology

LIST OF FIGURES
9 Figure 1: Big Pharma prescription and total revenues are rebounding following decline, 2013–17
10 Figure 2: In the forecast period, Big Pharma prescription revenues will show growth, 2018–26
13 Figure 3: Pharma-focus model drives Big Pharma revenues, 2013–17
14 Figure 4: Pharma revenue proportion forecasted to remain steady, 2018–26
15 Figure 5: Forecasted biosimilars growth is strong among prescription pharmaceuticals, 2012–16 and 2017–21
16 Figure 6: Big Pharma total revenues by business area, 2013–17
17 Figure 7: From focused to diversified: how the Big Pharma peer set ranks, 2017 revenues
18 Figure 8: The majority of Big Pharma companies stay above the 60% threshold of pharmaceutical revenue to total revenue, 2013–17
21 Figure 9: Big Pharma M&A and divestment volume, 2013–17
22 Figure 10: Big Pharma M&A and divestment value, 2013–17
23 Figure 11: Volume of billion-dollar Big Pharma M&As and divestments, 2013–17
24 Figure 12: Big Pharma’s annual proportion of prescription pharma versus non-prescription pharma M&As and divestments, 2013–17
25 Figure 13: Five-year aggregate proportions of Big Pharma M&As and divestments, by business type, 2013–17
28 Figure 14: Big Pharma M&As by business focus, 2013–17
29 Figure 15: Big Pharma divestments by business focus, 2013–17
30 Figure 16: With a few exceptions, most Big Pharma companies made more M&As than divestments, 2013–17
31 Figure 17: Roche led Big Pharma M&A volume, 2013–17
32 Figure 18: Teva led in Big Pharma acquisition dollars spent, 2013–17
33 Figure 19: The majority of the Big Pharma peer set’s M&A activity is in pharmaceutical markets, 2013–17
35 Figure 20: Five-year aggregate Big Pharma M&A volume proportion, by business focus, 2013–17
36 Figure 21: Merck & Co and Novartis led in Big Pharma divestments, 2013–17
37 Figure 22: Most Big Pharma divestments are focused on pharmaceuticals, 2013–17
39 Figure 23: Five-year aggregate Big Pharma divestment volume, by business focus, 2013–17
40 Figure 24: Developed markets overshadow emerging markets in Big Pharma M&A volume, 2013–17
41 Figure 25: North America leads Big Pharma M&A by region, 2013–17
42 Figure 26: The proportion of Big Pharma M&A in emerging markets is decreasing, 2013–17
43 Figure 27: Big Pharma divestments by geographic region, 2013–17
44 Figure 28: Few Big Pharma companies are geographically diversified in M&A, 2013–17
45 Figure 29: US-based companies are highly sought-after acquisition targets, 2013–17
46 Figure 30: Big Pharma M&A volume by region and business focus, 2013–17
50 Figure 31: Various focused and non-focused strategies pay off: no correlation between Big Pharma’s prescription focus and operating margin, 2017
51 Figure 32: Healthcare market overview by indicative profit potential
55 Figure 33: Biologics are increasing as a share of Bristol-Myers Squibb’s revenues, 2013–17
57 Figure 34: Pfizer’s vaccines sales are growing, 2013–17
60 Figure 35: The devices market is important to Johnson & Johnson’s revenues, 2013–17
65 Figure 36: Eli Lilly’s total revenues versus pharmaceutical revenues, 2013–17
66 Figure 37: Eli Lilly’s revenue share shifts toward biologics, 2013–17
68 Figure 38: GlaxoSmithKline sees a drop in both pharma sales and their proportion of total revenues, 2013–17
69 Figure 39: GlaxoSmithKline’s business focus by sales proportion, 2013–17

LIST OF TABLES
26 Table 1: Roche’s diagnostics acquisitions, 2013–17
27 Table 2: Top Big Pharma consumer health/OTC divestments, 2013–17
54 Table 3: Bristol-Myers Squibb’s “string of pearls” externalization (select deals), 2007–12
59 Table 4: Getting more focused: Pfizer’s key divestments and acquisitions, 2013–17
62 Table 5: Johnson & Johnson’s devices deal-making strategy: acquisitions and divestments, 2013–17
67 Table 6: Eli Lilly/Elanco’s growth in animal health through M&A, 2013–17
71 Table 7: GlaxoSmithKline’s vaccines M&As, 2013–17
78 Table 8: Global branded prescription pharmaceuticals market, 2016
80 Table 9: Big Pharma revenues, operating profit, and operating margin, 2016
81 Table 10: Indicative profit potential for the global branded prescription pharmaceuticals market, 2016
83 Table 11: Global devices and diagnostics market, 2016
85 Table 12: Total revenues, operating profit, and operating margin of the leading devices and diagnostics companies, 2016
86 Table 13: Indicative profit potential for the global devices and diagnostics market, 2016
88 Table 14: US health insurance market, 2016
89 Table 15: Total revenues, operating profit, and operating margin of the leading health insurance companies, 2016
89 Table 16: Indicative profit potential for the US health insurance market, 2016
91 Table 17: Global over-the-counter/consumer health market, 2016
93 Table 18: Total revenues, operating profit, and operating margin of the leading over-the-counter/consumer health companies, 2016
94 Table 19: Indicative profit potential for the global OTC/consumer health market, 2016
96 Table 20: Global generics market, 2016
97 Table 21: Total revenues, operating profit, and operating margin of the leading generics companies, 2016
97 Table 22: Indicative profit potential for the global generics market, 2016
99 Table 23: Global retail pharmacy market, 2016
100 Table 24: Total revenues, operating profit, and operating margin of the leading retail pharmacy companies, 2016
100 Table 25: Indicative profit potential for the retail pharmacy market, 2016
102 Table 26: US hospitals market, 2016
103 Table 27: Total revenues, operating profit, and operating margin of the leading US hospitals, 2016
103 Table 28: Indicative profit potential for the US hospitals market, 2016
105 Table 29: Pharmacy benefit management market, 2016
106 Table 30: Total revenues, operating profit, and operating margin of the leading PBM companies, 2016
106 Table 31: Indicative profit potential for the PBM market, 2016
108 Table 32: Pharmaceutical wholesaler market, 2016
109 Table 33: Total revenues, operating profit, and operating margin of the leading pharmaceutical wholesaler companies, 2016
109 Table 34: Indicative profit potential for the pharmaceutical wholesaler market, 2016
111 Table 35: Global animal health market, 2016
112 Table 36: Total revenues, operating profit, and operating margin of the leading animal health companies, 2016
113 Table 37: Indicative profit potential for the global animal health market, 2016
121 Table 38: Average 2017 exchange rates