Analyzing the correlation between new drug approvals and M&A activity

1. Pharmaceutical Mergers
and Acquisitions
in the U.S.
Analyzing the correlation between new drug
approvals and M&A activity
2015

2. 2
Copyright © Capgemini Consulting 2015.
All Rights Reserved
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
$70
$109
$152
$109
$56 $43
$79
$212
$151
$73
170
188
171
194 197 192 193
182
100
125
150
175
200
225
0
50
100
150
200
250
2007 2008 2009 2010 2011 2012 2013 2014 2015
DealCount
DealValue($Bn)
M&A Activity in Pharma and Biotech
Deal Value Projected Deal Count
Size and number of deals by U.S. pharmaceutical and biotech companies since 2007
Sources: FiercePharma,
EvaluatePharma,
Capgemini Analysis)

3. 3
Copyright © Capgemini Consulting 2015.
All Rights Reserved
The size of recent deals disguises the true characteristics of
pharmaceutical mergers and acquisitions activity
89%
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Megadeals
($5 bn+)
Other Deals
(< $5 bn)
Deal Value
6%
94%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Megadeals
($5 bn+)
Other Deals
(< $5 bn)
# 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

4. 4
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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 pharmaceutical
companies with new drug approvals were
acquired in past 20 months
Resonant themes across recent small to mid-
pharma acquisitions

5. 5
Copyright © Capgemini Consulting 2015.
All Rights Reserved
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 Approvals
and 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)

6. 6
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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
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2104 2015
MedianEBITDAMultiple(x)
Pharmaceutical and Biotechnology Median Acquisition Multiples
Median EBITDA multiple paid to acquire pharmaceutical and biotechnology companies, 2007-2015
Sources: Bloomberg, Capgemini Analysis
Over the past decade, there has been an increase in acquisition prices for pharmaceutical and
biotechnology companies

7. 7
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All Rights Reserved
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

8. 8
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