PwC Deals $42B. Global Pharma & Life Sciences Deals Insights Q Update

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1 PwC Deals Q3 16 Update Executive summary Global Pharma and Life Sciences (PLS) deal activity declined both in volume and value this quarter compared to the prior quarter and Q3 15. The considerable decrease in deal value was the result of a reduced number of mega and other large deals (especially deals greater than $1 billion). Overall, only Asia Pacific had a moderate increase in deal activity, while there was a decline from other regions. The reduction in deal activity relative to the prior year continues to be driven by a combination of general market forces, including uncertainty around potential interest rate movements and industry specific factors. Recent media attention around drug pricing has driven lower deal volume in the specialty pharma space as potential acquirers wait to see how this trend develops in the next few quarters. As industry participants continue to re-evaluate their portfolios of assets, deal volumes may trend upwards toward more historical levels for the industry by the end of the year. However, there may continue to be lower total deal value relative to historical levels as potential acquirers become more disciplined with deal pricing and look for smaller targets. Value by thenumbers $42B Volume by the numbers 90 50% deal value versus Q2 16 5% deal volume versus Q2 16 Source: Thomson Reuters, Capital IQ, PwC analysis 65% deal value versus Q % deal volume versus Q3 15 Despite the short-term trends in the market, the underlying rationale for completing deals in the PLS sector continues to remain the same, as success in the broader industry is driven by access to scarce assets. Dimitri Drone, Global Pharma & Life Sciences Deals Leader Q3 16 highlights A total of 90 deals were announced amounting to $42 billion in disclosed deal value during Q3 16. Of these, 26 transactions were completed, while 64 are pending. There were 7 transactions worth $1 billion or more during Q3 16. The transaction with the highest value was worth $14.1 billion. In terms of deal value, biotechnology was the largest segment with deals worth $.9 billion. The pharmaceuticals segment followed with 37 deals worth $8.5 billion. Overall, 81% or $33.8 billion of the total PLS deal value involved companies in the United States. Asia-Pacific was the only geography to grow on a Q-o-Q basis in both volume and value, with respective increases of 11% and 23%, helping to partially offset the drop in overall activity for the quarter. Q3 16 update 1

2 Deal value ($ in billions) Number of deals Highlights of Q3 16 deal activity M&A market drops While the number of deals announced in Q3 16 was down significantly relative to 15 levels, volumes in the last three quarters of 16 have been relatively stable. After a relatively strong 15, four out of the last six quarters experienced deal values below $50 billion. These trends suggest that deal volumes in the future have the ability to trend upwards; however, it is likely that deal values may continue to be depressed until uncertainty around general economic factors and industry conditions are mitigated. Pharma & life sciences deal volume and value $121.8 $86.0 $47.6 $118.7 $34.2 $36.7 $82.5 $ Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Announced deal value Announced deal volume Market multiples Median Q3 16 enterprise value/revenue multiples decreased compared to Q2 16 and continue to be down relative to 15 levels. Meanwhile, average enterprise value/revenue trading multiples for the largest participants in the biotechnology and pharmaceutical sub-sectors have stayed relatively flat Q-o-Q since Q4 14, while medical device/equipment multiples have been slowly trending upward. EV/revenue transaction multiples 25.0x.0x 15.0x 10.0x 5.0x 0.0x Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 3rd Quartile 1st Quartile Median Venture capital financing Venture capitalists invested $10.6 billion in 891 deals in the third quarter of 16, according to the MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. The biotechnology industry received the second largest amount of venture capital behind software, with $1.8 billion going into 87 deals, representing a 5% increase in dollars invested and a 16% decrease in the number of deals, compared with the second quarter of 16. Within the biotechnology sector the largest investment was raised by Modernatix Inc., an early/clinical stage company, in the amount of million. Investments in the sector declined 15% in dollars invested and 30% in number of deals compared with the third quarter of 15. Investments in the life sciences sector (biotechnology and medical devices combined) during the third quarter accounted for $2.5 billion going into 156 deals, increasing 8% in dollars invested and declining 7% in number of deals compared with the second quarter of 16. Investments in life sciences companies accounted for 24% of all venture capital deployed to the startup ecosystem in the third quarter, up 9% from a share of 15% in the previous quarter. Investments in life sciences as a whole declined 17% in dollars invested and 26% in number of deals compared with the third quarter of 15. Q3 16 update 2

3 Key trends and insights Announced deal values by target region for Q3 16 United States $31.5 billion; 75.8% Western Europe $3.2 billion; 7.6% Asia-Pacific $5.7 billion; 13.7% Rest of the World $1.2 billion; 2.9% Deals by target geography While Asia Pacific had a modest deal volume growth of 23% in Q3 16 compared to Q2 16, United States, Western Europe, and other geographies decreased by 5%, 40% and 33%, respectively in the same period. United States (excluding Outbound) continued to lead the global PLS deal value (76% share or $31.5 billion) but experienced a decline in volume and value this quarter on both a Q-o-Q and Y-o-Y basis. Strategic acquirers continued to lead in deal activity over financial buyers in Q3 16 with an aggregate of $39.8 billion in deal value (96% share in total deal value) and 77 deals (86% of total deal volume). US and foreign deals The major local and foreign activity occurring during Q3 16 include: Inbound Galenica AG, of Switzerland, acquired the entire share capital of Relypsa Inc., a Redwood City based clinical stage biopharmaceutical company, for $1.5 billion. Outbound Pfizer Inc. agreed to acquire the small molecule antibiotics business of AstraZeneca PLC, a UK based manufacturer and wholesaler of pharmaceuticals, for $1.6 billion. Local Pfizer Inc. merged with Medivation Inc., a San Francisco based manufacturer of pharmaceutical preparation, for $ 14.1 billion, via tender offer. Foreign Shanghai Fosun Pharmaceutical (Group) Co. Ltd. of China agreed to acquire 86% interest in Gland Pharma Ltd., an India-based manufacturer of pharmaceutical preparation, for $1.3 billion. Q3 16 update 3

4 Highlights of Q3 16 deal activity Key announced transactions The number of deals that surpassed the billion-dollar mark halved during the quarter from 14 deals in Q2 16 to 7 deals in Q3 16. The top 5 deals for the quarter were: Merger of Pfizer Inc. with Medivation Inc., a cancer dug company, for $14.1 billion, via tender offer. Johnson & Johnson agreed to a $4.3 billion deal to acquire Abbott Medical Optics Inc., a manufacturer and wholesaler of eye care surgical equipment and products, from Abbott Laboratories. Danaher Corp. agreed to acquire Cepheid Inc., a manufacturer and marketer of micro fluidic systems for $3.9 billion. Pfizer Inc. agreed to acquire the small molecule antibiotics business of AstraZeneca PLC, for $1.6 billion. Allergan PLC agreed to acquire the entire share capital of Tobira Therapeutics Inc., a manufacturer of pharmaceutical preparation, for an estimated total value of $1.5 billion, via tender offer. Deal volume by transaction size Transactions with value between $500 million and $1 billion increased more than 300% in both deal volume and value on a Q-o-Q basis. Deals valued more than $1 billion experienced a volume and value decline of 50% and 61%, respectively. Deals between $50 million and $100 million increased 43% in value and 25% in volume on a Q-o-Q basis. Announced deal volume and value by sub-sector Biotechnology was the most active segment in terms of value accounting for 51% of the total deal value in Q3 16. Pharmaceutical had the highest volume of deals 37 deals representing 41% of the total deals of the quarter. The segment had the second highest deal value of $8.4 billion. Medical devices witnessed a decline of 56% in its deal value - from $16.7 billion in Q3 15 to $7.4 billion in Q3 16. Deal value in the diagnostics segment increased by more than 250% on a Y-o-Y basis although its deal volume declined by 60% during the same period. # of deals $15-$50m 38% Biotechnology $,982 $50-$100m 22% 37 Pharmaceuticals $8,457 $100-$250m $250-$500m $500m-$1b $1b+ 12% 10% 10% 8% Medical Devices $7,423 Diagnostics $4,011 Services $671 Note: Deals included in this chart are those that have disclosed value. Q3 16 update 4

5 About PwC s Deals Practice Authors Dimitri Drone Partner, Global Pharmaceutical and Life Sciences Leader PwC s Deals Practice (973) dimitri.b.drone@pwc.com James Woods Principal, PwC s Deals Practice (617) james.woods@pwc.com Brian Geiger Director, PwC s Deals Practice (312) brian.geiger@pwc.com For a deeper discussion on pharmaceutical and life sciences deal considerations, please contact our practice leader: Bob Saada US Deals Leader, PwC s Deals Practice (646) bob.d.saada@pwc.com PwC s Deals professionals help clients understand the risks in transactions so they can be confident that they are making informed strategic decisions. From deal negotiations to capturing synergies during integration, we help clients gain value and ultimately deliver this value to stakeholders. For companies in distressed situations, we advise on crisis avoidance, financial and operational restructuring, and bankruptcy. PwC s Deals Practice can advise pharmaceutical and life sciences companies and PLS-focused private equity firms on a range of M&A decisions, from identifying acquisition or divestiture candidates and performing detailed buy-side diligence, through developing strategies for capturing post-deal profits, to exiting a deal through a sale, carve-out, or IPO. Our seasoned deals teams combine deep pharmaceutical and life sciences industry skills with local market knowledge. With more than 15,000 deals professionals in over 1 countries, we can deploy a deals team virtually anywhere your company operates or executes transactions. Although each deal is unique, most will benefit from the broad experience we bring to delivering strategic M&A advice, due diligence, transaction structuring, M&A tax, merger integration, valuation, and post-deal services. In short, we offer integrated solutions tailored to your particular deal situation and designed to help you complete and extract peak value within your risk profile, whether your focus is deploying capital through an acquisition or joint venture, raising capital through an IPO or private placement, or harvesting an investment through the divestiture process. For more information about M&A and related services in the pharmaceutical and life sciences industry, please visit or For our views on the health industries sector, refer to the US Health Services reports on the deals section of our website. About the data We define M&A activity as mergers and acquisitions in which targets are US based companies acquired by US or foreign buyers, or foreign targets acquired by US or foreign pharmaceutical and life sciences companies. We define divestitures as the sale of a portion of a company (not a whole entity) by a US-based or foreign seller. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement-date for transactions with a disclosed deal value greater than $15 million, as provided by Thomson Reuters as of June 30, 16, and supplemented by additional independent research. Information related to previous periods is updated periodically based on new data collected by Thomson Reuters for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Thomson Reuters and includes deals for which buyers or targets fall into one of the PLS industry sectors: biotechnology, medical devices, medical diagnostics, pharmaceuticals, or services (i.e., contract research organizations). Certain adjustments have been made to the information to exclude transactions that are not specific to the PLS industry. Capital market and equity return information is sourced from Capital IQ. 16 PwC. All rights reserved. PwC and PwC US refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors vc