Pharmaceutical Mergers and Acquisitions in the U.S.Analyzing the correlation between new drug approvals and M&A activity

2015

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The pharmaceutical industry has seen increased merger & acquisition activity over the past few years

Increase in Average Deal Size

Increase in Total Number of Deals

2014 surpassed the combined total for deals from 2011-2013 and saw over $200bn in pharma mergers and acquisitions, a 300% increase from the previous year

2007 2008 2009 2010 2011 2012 2013 2014 20150

50

100

150

200

250

100

125

150

175

200

225

$70 $109

$152 $109

$56 $43 $79

$212 $151

73170

188

171

194 197 192 193182

M&A Activity in Pharma and Biotech

Deal Value Projected Deal Count

Deal

Val

ue ($

Bn)

Deal

Cou

nt

Size and number of deals by U.S. pharmaceutical and biotech companies since 2007

Sources: FiercePharma, EvaluatePharma, Capgemini Analysis)

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The size of recent deals disguises the true characteristics of pharmaceutical mergers and acquisitions activity

Megadeals($5 bn+)

Other Deals(< $5 bn)

0%10%20%30%40%50%60%70%80%90%

100%89%

11%

Deal Value

Megadeals($5 bn+)

Other Deals(< $5 bn)

0%10%20%30%40%50%60%70%80%90%

100%

6%

94%

# of Deals

Although major acquisitions outweigh other deals by value, over 90% of deals were relatively small in size (less than $5bn)

U.S. pharmaceutical and biotech deals by value and count since January 2014

Source: FiercePharma, CrunchBase, EvaluatePharma, Capgemini Analysis

The smaller deals tend to be much more focused, with target companies offering different sources of value to the acquirer, such as research or portfolio expertise, a breakthrough

pipeline drug, or a recent drug approval

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The small and mid-sized companies that have been acquired share several key characteristics

New drug approval with promising peak sales

Special FDA status for existing or pipeline products

Proven R&D leadership in a specific technology or therapeutic area

Relatively small market capitalization

42%

13%

45%

Recent Drug Approvals (Since January 2014)

Large Pharma (2014 Revenue > = $15bn)

Mid-Sized Pharma

Small Pharma companies (2014 Revenue < = $5bn)

26% of small to mid-sized pharmaceuticalcompanies with new drug approvals were

acquired in past 20 months

Resonant themes across recent small to mid-pharma acquisitions

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There is a correlation between acquisitions of small and mid-sized companies and new drug approvals

M&A activity within small-mid sized companies has largely been driven by product-focused acquisitions

2014

Jan Feb March April May June July Aug Sept Oct Nov Dec Jan Feb March April May June July Aug

2015

Time Elapsed Between New Product Approvalsand Acquisitions

Northera(Chelsea Thpts / Lundbeck)

Sivextro(Cubist / Merck)

Zerbaxa(Cubist / Merck)

Cholmbam(Asklepion / Retrophin)

Esbriet(InterMune / Roche)

Natpara(NPS / Shire)

Addyi(Sprout / Valeant)

Kybella(Kythera Biopharma / Allergan)

Dalvance(Durata Therpeutics / Actavis)

(-)3 mths

Soolantra(Galderma / Nestle)

(-) 5 mths

(+) 6 mths

(+) 15 mths

(-) 3 mths

(+) 5 mths

(-) 2 mths

Namzaric(Forest Laboratories / Actavis)

Imbruvica(Pharmacyclics / Abbvie)

Xifaxan(Salix Pharmaceutical / Valeant)

(-)2 mths

(+) 6 mths

(-)10 mths

Relationship between new drug approval and acquisition for small and mid-sized pharmaceuticals since January 2014 (Source: Capgemini Analysis)

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For companies that have these characteristics, the market is eager and willing to pay rich multiples for the potential high payout

2007 2008 2009 2010 2011 2012 2013 2104 20150

5

10

15

20

25

30

Pharmaceutical and Biotechnology Median Acquisition Multiples

Med

ian

EBIT

DA M

ultip

le (x

)

Median EBITDA multiple paid to acquire pharmaceutical and biotechnology companies, 2007-2015Sources: Bloomberg, Capgemini Analysis

Over the past decade, there has been an increase in acquisition prices for pharmaceutical and biotechnology companies

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Small to mid-sized companies that are in the process of developing and launching new drugs must be prepared to be acquisition targets

In order to be better prepared for a merger / acquisition scenario, there are several steps a potential target company should take

Estimate global valuation, including value of current & pipeline products

Develop relationships with key investors to ensure their ongoing commitment and understand relevant motivations

Get a better understanding of the corporate law of their home country as well as that of the U.S.

Review their ownership structure and have a plan ready to respond to any unsolicited third-party interest

While performing valuations, select partners carefully so as to ensure that all relevant information is appropriately captured

Remain informed of current market focus and incentives for mergers and acquisitions, specifically related to types of products and portfolios

Identify acquisition targets of their own to increase market capitalization and deter acquisition

In the case that the company is open to a merger or acquisition, they should proactively identify potential companies that might be a good strategic fit

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Read the complete paper at…

www.slideshare.net/capgemini/pharmaceutical-mergers-acquisitions-in-the-us

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