PwC Deals Global Pharma & Life Sciences Deals Insights Q 18 The increase in deal activity in Q 18 sets the stage for a strong second half of the year. Companies continue to review their portfolios for opportunities to create value through acquisitions or divestitures. Executive summary M&A values and volumes witnessed meaningful increases in Q 18, with volumes in the quarter reminiscent of 16 and 17 levels. Reversing course from the prior quarter, the Pharmaceutical subsector led in deal volume with a 0% increase in Q 18 over the prior quarter, returning volume to average historical levels. The rise in activity was in line with expectations due to pent up demand and surplus cash. Corporate divestitures continued to be active, as evidenced by announced and publicized deals including Sanofi/Zentiva, J&J/Advanced Sterilization, GE/GE Healthcare, and Eli Lilly/Elanco, as companies continue to reassess their strategic visions and shed assets that are not deemed to be part of their core operations. Private equity buyers, with significant levels of dry powder, are well positioned to acquire many of these carveouts, even with more robust pricing for these assets relative to recent historical periods. We expect Big Pharma to remain active and Biotech to see increased activity in Q3 18, as companies in these subsectors continue to build out their pipelines with smaller acquisitions of highquality assets. We expect the Medical Devices space to remain active, but likely in volumes rather than values. The Services/Other subsector experienced a soft quarter for activity, but given the continued consolidation in this area, we would expect an increase in future quarters. After a quarter filled with news around consolidation in the Pharma and Med Device subsectors, we anticipate more mega deals to drive deal activity in the second half of 18. These megadeals should continue to encourage greater competition for smaller targets as buyers hunt for scarce assets. Similar to prior quarters, we expect the recent trend of large divestitures to continue as companies reassess their offerings and look for ways to meet and exceed the level of growth investors expect. Glenn Hunzinger, US PLS Deals Leader, PwC Q 18 vs Q1 18 vs Q 17 Subsectors (see overleaf for commentary) Value by thenumbers $119.1B 1% 53% Recent Trends Outlook Increase in deal value vs Q1 18 Increase in deal value vs Q 17 Pharmaceutical Volume by the numbers 61 30% 9% Biotechnology Increase in deal volume vs Q1 18 Decrease in deal volume vs Q 17 Medical Devices Source: Capital IQ and PwC analysis Other/Services
Volume Value (USD in Billions) A deeper look into subsectors Subsector breakdown Q 18 Big Pharma experienced a significant increase in deal value in Q 18 driven mainly by Takeda s announced acquisition of Shire. Strategic fit and ability to create shareholder value given takeout premiums are the headwinds driving the current state of Big Pharma. Going forward, we believe the rest of 18 will be active for Big Pharma as stakeholders strive to build out robust pipelines of high potential assets. Additionally, divestitures will continue to be a major focus of Big Pharma as companies seek to extract value and reshape their portfolio. Biotech deal value and volume decreased 50% and 1%, respectively, in Q 18 as the prior quarter had a large acquisition by Sanofi and two by Celgene, surrendering its lead from the prior quarter back to the Pharma subsector. Going forward, we believe the value gaps will likely narrow, but more importantly that the larger Biotechs could be active in M&A as consolidation amongst the larger players is a possibility. Novel areas will likely drive demand as FDA approvals are at their highest level in years. The subsector will also experience some level of disruption given the focus on accelerating FDA approvals and the desire to start adopting advanced digital technologies in the R&D process. Medical Devices, including Diagnostics, increased 9% in deal value in Q 18 with Fortive s acquisition of J&J s Advanced Sterilization Products business for $.7B and Zoetis acquisition of Abaxis for $.0B. We believe the need for Medical Device companies to add scale and breadth to their product portfolios, while focusing on innovative, highgrowth therapeutic areas and shedding lowergrowth assets, still exists. As a result, the rest of 18 will likely be an active time for divestitures (with GE Healthcare as the most prominent) as well as acquisitions of smaller to medium sized bolton deals. We continue to expect the Medical Device subsector to pursue technology alliances and deals to maximize the value of product innovation. Specialty Pharma and Generics were slow this quarter as the Generics subsector continued to examine pricing declines and whether the market had bottomed out. Once this question is answered, we expect nonus (China, India, etc.) and Private Equity buyers to be active and to see "mergers of equals" as midmarket players look to create scale and ascend to category leadership. Strategic divestments will also continue to create stronger balance sheets and potentially brighter prospects. Import tariffs have the potential to impact US generic pharmaceutical companies that manufacture their drugs in the US, if they import active pharmaceutical ingredients from Asia. It is not yet clear what the impact might be on M&A for these generic manufacturers. Other/Services subsector (CRO, CMO, etc.) saw deal activity back down in Q 18 as deal flow in the subsector stalled out with only one significant transaction making up the bulk of the deal value (Altaris acquisition of Analogic). Overall, given the interest of Private Equity around the service businesses of PLS, we believe volumes will be active while values will decline given the larger consolidations and flurry of CRO activity in 17. We expect contract manufacturing for the Medical Device segment to continue a recent trend toward outsourcing. The need to scale, coupled with the alignment of holding periods and potential exits for private equity portfolio companies, are key considerations in contract manufacturing. Lastly, while Animal Health has not seen significant megadeal activity in the past several years (last larger deal being the BI/Sanofi Swap), we believe the rumored Lilly/Elanco divestiture may make Animal Health active. The previously mentioned Zoetis/Abaxis deal could start a trend toward increased activity in the diagnostics (including wearables), services and nondrug offerings within Animal Health. Also, cross pollination of the consumer/retail and companion animal space may bring new entrants to the industry as retailers look to vertically integrate. This type of activity was demonstrated with Mar s acquisition of veterinary firm AniCura. Subsector breakdown analysis historical activity Pharmaceutical Biotechnology Medical Devices Other/Services 9.3 Takeda announced $81.7B acquisition of Shire 4.7 5.5 1.1 15.4 8.5 acquisitions each by Celgene and Sanofi totaling $33.3B 38. 18.9 6.5 4.7 3.5 6.7 3.4 0.4 3.1 1. Q3 17 Q4 17 Q1 18 Q 18 Q3 17 Q4 17 Q1 18 Q 18 Q3 17 Q4 17 Q1 18 Q 18 Q3 17 Q4 17 Q1 18 Q 18 30 10 0 9 30 17 17 19 13 15 14 14 10 9 6 Q3 17 Q4 17 Q1 18 Q 18 Q3 17 Q4 17 Q1 18 Q 18 Q3 17 Q4 17 Q1 18 Q 18 Q3 17 Q4 17 Q1 18 Q 18 PwC Deals Global Pharma & Life Sciences Deals Insights Q 18
Deal Value ($ in billions) Number of deals Highlights of Q 18 deal activity Announced M&A transactions increased in Q 18 Deal volume increased in Q 18, breaking a streak of steady declines experienced since 16. The quarter also saw its second consecutive increase in deal value. This quarter included an announced $81.7B acquisition of Shire plc. by Takeda Pharmaceutical, resulting in a deal value that more than doubled the Q1 18 total. Novartis AG s acquisition of AveXis, Inc. for $8.7B also helped drive deal value higher in Q 18. While Q 18 included a megadeal that created a spike in deal value, the sector still experienced a notable increase in deal volume which may indicate a resurgence in the sector. Even after excluding the TakedaShire deal, deal value for Q 18 was above the levels experienced in Q3 and Q4 17. Pharma & life sciences deal volume and value 1 16 17 18 1 98 75 76 67 65 61 66 47 53.1 3.6 54.1 77.7 30.0 19.0 45.8 119.1 Q3 16 Q4 16 Q1 17 Q 17 Q3 17 Q4 17 Q1 18 Q 18 Total Value Total Volume 1 Foreign deal activity takes lead In the prior quarter, almost half of the deal value came from US deals, compared to inbound, outbound and foreign transactions combined. However, in Q 18, foreign transactions took the lead for the second time in the past year. 1 1 US vs cross border deals by value Inbound deal value was mostly driven by the second largest transaction of the quarter, which was the $8.7 billion acquisition of AveXis, Inc. by Novartis AG. While inbound deals continue to represent a relatively small share of total value, we still expect tax reform to drive a renewed focus for foreign companies looking to expand operations in the US in the upcoming years. Additionally, tax reform could drive an increase in US deals as acquirers begin to develop acquisition strategies that take advantage of favorable legislative developments. Q3 17 Q4 17 Q1 18 Q 18 US Outbound Inbound Foreign Venture capital financing Venture capitalists invested $3.0 billion in 1,416 USbased deals in Q 18, according to the MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Healthcare, as a whole, received the second largest amount of venture capital dollars, behind Internet, with $5.3 billion going into 16 deals. This activity represents a minimal change in dollars invested and a 1% increase in the number of deals, compared with Q1 18. According to the MoneyTree Report, Healthcare deal share was greater than Mobile & Telecom activity (historically the second largest slice of deal share) for the second consecutive quarter in Q 18. The quarter was fueled by 45 megarounds of $ million or more for US companies, 10 more than Q1 18. According to Tom Ciccolella, US Venture Capital Leader at PwC, Deal activity looks to be resurgent with $3B invested in VCbacked startups setting a new quarterly funding record, while also increasing activity to over 1,0 deals. San Francisco and New York were the largest players in VC funding, with 464 deals in total, representing 33% of all deals for the quarter. Source: PwC MoneyTree Report Q 18 PwC Deals Global Pharma & Life Sciences Deals Insights Q 18 3
Key trends and insights Top PLS deals of Q 18 Announced Target Name Target nation Acquirer name Acquirer nation Deal value Segment 04/19/18 Shire plc Channel Islands Takeda Japan 81,667 Pharma Pharmaceutical 04/09/18 AveXis, Inc. United States Novartis AG Switzerland 8,696 Biotech 06/18/18 China Biologic Products Holdings, Inc. Cayman Islands CITIC Capital Holdings Limited Hong Kong 3,3 Biotech 06/06/18 Advanced Sterilization Products Services, Inc. 04/16/18 Oncology Business of Shire United States Fortive Corporation United States,700 Medical Devices Ireland Les Laboratoires Servier SAS 05/14/18 MedReleaf Corp. Canada Aurora Cannabis Inc. 06/8/18 Zentiva Group, a.s. Czech Republic Advent International Corporation France,0 Pharma Canada,391 Pharma United States, Pharma 05/16/18 Abaxis, Inc. United States Zoetis Inc. United States 1,995 Medical Devices 05/10/18 ARMO BioSciences, Inc. United States Eli Lilly and Company United States 1,68 Biotech 05/04/18 Sirtex Medical Limited Australia CDH Investments China 1,49 Biotech Deals by target geography Western Europe was the dominant deal value target region for the first time in the last 4 quarters, driven by the TakedaShire megadeal. North America was the deal volume leader with 39% of total deal volume. After the TakedaShire megadeal, the next nine largest transactions for the quarter saw a relatively even split of deal value between US, inbound, and foreign deals. Targets in the Asia Pacific region saw a slight increase from Q1 18 to Q 18, going from 1% of total deal value to 3% of deal value. However, deal volume for targets in the region increased from 4 deals in Q1 18 to 1 deals in Q 18. United States $.5 billion; 17% Western Europe $85.5 billion; 7% Rest of the World $10.1 billion; 8% AsiaPacific $3.0 billion; 3% The rest of the world saw a small increase from Q1 18 to Q 18, going from 6% of total deal value to 8% of deal value. PwC Deals Global Pharma & Life Sciences Deals Insights Q 18 4
About PwC s Deals Practice Glenn Hunzinger Partner, US Pharmaceutical and Life Sciences Leader PwC s Deals Practice 6464718764 glenn.hunzinger@pwc.com Brian Geiger Principal, PwC s Deals Practice 3198350 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 646471719 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 PLSfocused private equity firms on a range of M&A decisions, from identifying acquisition or divestiture candidates and performing detailed buyside diligence, through developing strategies for capturing postdeal profits, to exiting a deal through a sale, carveout, or IPO. Our seasoned deals teams combine deep pharmaceutical and life sciences industry skills with local market knowledge. With more than,000 deals practitioners worldwide, we can deploy seasoned teams that combine deep health services industry skills with local market knowledge 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 postdeal 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 www.pwc.com/us/pharmadeals, www.pwc.com/us/pharma or www.pwc.com/us/medtech. For our views on the health industries sector, refer to the Global Pharma & Life Sciences Deals Insights reports on the deals section of our website. About the data We define M&A activity as mergers and acquisitions in which targets are USbased 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 USbased or foreign seller. We have based our findings on data provided by industryrecognized 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 Capital IQ, as of June 30, 18, and supplemented by additional independent research. Information related to previous periods is updated periodically based on new data collected by Capital IQ for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Capital IQ and includes deals for which buyers or targets fall into one of the PLS industry subsectors: biotechnology, medical devices, pharmaceuticals, or other (such as contract manufacturing 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. 18 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.