Total deal value for the pharmaceutical sector was three times higher for Q2 2015 (versus Q2 2014) as well as HY1 2015 (versus HY1 2014) while deal numbers stayed relatively flat. KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain ‘Hot’ in pharmaceuticals.
In HY1 2015, the value of completed deals reached $221 billion with the value of the top 10 completed deals amounting to $56.4 billion. Strategic repositioning is a key driver for the pharmaceutical M&A. Oncology and generics are areas of particular interest. US remains the most active country followed by China.
Patent expirations drive investments in oncology: In 2015, the pharmaceutical industry is at risk of losing $44 billion in sales due to patent expirations. Many firms have undertaken value - enhancing M&A to diversify and reinforce their drug pipelines, in the light of a potential loss of market exclusivity. With global annual spending of $100 billion on cancer drugs in 2014, and an expected compound annual growth rate of 6 - 8% during 2015-18, the oncology sector is a key focus area.
Generics consolidation continues: The consolidation in generics is ongoing with Teva Pharmaceutical Industries leading the way. Teva acquired Auspex Pharmaceuticals Inc. for $3.5 billion, paying a 42% premium to Auspex’s closing price on March 27 in order to strengthen its position in the movement disorder market.
Orphan drugs remain attractive targets: Orphan drugs remained attractive during Q2 2015, with Alexion Pharmaceuticals Inc. announcing the acquisition of Synageva BioPharma Corp. for $8.4 billion, a premium of 139% over the closing price on May 5, and expects to create a strong rare disease pipeline in biotech.
PE involvement in Pharmaceuticals: PE continues to show interest in the pharmaceutical sector and has contributed to the top 10 deals of Q2 2015.
The pharma indices continue to outperform the MSCI world index, with Europe and Asia Pacific in particular still performing strongly. Nevertheless the gap is shrinking slightly.
China has risen to being the second-most active country in pharmaceutical M&A following the US. However, the vast majority of deals are still domestic, with 20 out of 22 completed transactions in Q2 2015 undertaken by domestic acquirers.