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Deal Capsule Transactions in Chemicals & Pharmaceuticals April 2017 M&A in Life Sciences continued apace, particularly with strong interest for biotech assets in “oncology. Consolidation in the paints and coatings sector drives high levels of Chemicals M&A. VIR LAKSHMAN | HEAD OF CHEMICALS & PHARMACEUTICALS, KPMG IN GERMANY ” HIGHLIGHTS FIGURE 1: TRENDS IN PHARMACEUTICALS M&A 821 — M&A continues to be brisk with the number of completed 755 797 778 722 697 deals in both sectors remaining at a high level. One 204 pharmaceutical deal completed in Q1 2017 broke the $10 180 billion mark. Chemicals saw a deal above $20 billion being announced. 36 100 79 69 170 298 185 28 — Big pharma players continue to acquire biotechs, particularly in the oncology area. Venture Capital is also 2011 2012 2013 2014 2015 2016 Q1 2016 Q1 2017 increasing investments in biotech assets. Deal Value in $ bn. Number of Completed Deals Sources: Thomson One, KPMG Analysis — Transactions in Chemicals focused on paints and coatings and plastics. FIGURE 2: TRENDS IN CHEMICALS M&A — US and China remain the most active countries. Japanese companies were more active and participated in some 883 872 large deals. 776 829 806 774 — KPMG’s Deal Thermometer indicates that the 181 183 environment for M&A activity will remain moderately strong in both pharmaceuticals and chemicals. 83 34 53 60 76 72 14 10 2011 2012 2013 2014 2015 2016 Q1 2016 Q1 2017 Deal Value in $ bn. Number of Completed Deals Sources: Thomson One, KPMG Analysis DEAL THERMOMETER Q1 2017 KPMG’s Deal Thermometer signals the environment for M&A deals in chemicals and pharmaceuticals. It combines the appetite for deals (changes in forward P/E ratios) with the capacity to fund deals (changes in Net Debt/ EBITDA multiples). ‘Hot’ signifies an environment conducive to deal-making. PHARMACEUTICALS HOT CHEMICALS DEAL APPETITE DEAL CAPACITY DEAL APPETITE DEAL CAPACITY (Forward P/E ratio) (Net debt/EBITDA) (Forward P/E ratio) (Net debt/EBITDA) MODERATE 14.9 16.0 14.3 1.3x 15.1 0.8x 0.9x 0.5x 6% 37% 4% 31% COOL 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 2016 2017 2017 2018 2016 2017 2017 2018 Sources: Capital IQ, KPMG Analysis Sources: Capital IQ, KPMG Analysis 2 | Deal Capsule | April 2017 Pharmaceuticals The value of the top 10 completed deals in Q1 FIGURE 4: TOP COUNTRIES IN PHARMACEUTICALS M&A Q1 2017* 53 51 2017 increased 36% compared to the previous AS ACQUIRER AS TARGET year with one transaction surpassing the $10 billion mark. Pharmaceutical firms focused on 30 32 biotech targets to replenish their pipelines. US and China remain the most active countries. 12 9 9 9 8 9 8 8 8 8 8 9 5 5 3 4 DEAL FOCUS AREAS US CHINA FRANCE S. KOREA GERMANY CANADA INDIA SPAIN AUSTRALIA UK A third of Q1 pharmaceutical transactions are in the biotech sector helping pharma to replenish pipelines. Oncology * Number of completed deals Sources: Thomson One, KPMG Analysis continues to be the top therapeutic area of interest. In 2017, three of the five biggest growing drugs are likely to be cancer treatments. By 2020, more than 225 medicines are estimated Sumitomo Dainippon Pharma Co., Ltd. acquired Tolero to be introduced with one-third focused on treating cancer. Pharmaceuticals Inc. for $0.8 billion. Tolero has several Risk sharing via contingency payments facilitated deals in Q1 preclinical and late-stage assets in oncology and hematology. 2017. The deal will help Sumitomo refresh its pipeline as its main pillar, the atypical anti-psychotic LATUDA, loses exclusivity in 2019. BIOTECH Ipsen S.A. plans to acquire oncology assets from Merrimack Takeda Pharmaceutical Company Ltd. completed the $5.2 Pharmaceuticals Inc. for $1 billion to strengthen its global billion all-cash acquisition of ARIAD Pharmaceuticals Inc., leadership in specialty oncology. Ipsen is interested in expanding its oncology business by adding two precision Merrimack’s key product, ONIVYDE, a treatment for medicines – Iclusig and Brigatinib. Iclusig is expected to metastatic pancreatic cancer, the third leading cause of bolster Takeda’s position in hematology in the US. Brigatinib, cancer related deaths. a lung cancer drug under investigation, has the potential to Celgene Corp. plans to acquire Delinia Inc. for $0.8 billion, a generate peak annual sales of more than $1 billion. In 2017, biotech developing novel therapeutics for the treatment of Takeda faces the patent expiry of Velcade, which accounted autoimmune diseases and cancer. With the deal, Celgene for 24% of its US sales in 2016. accesses Delinia’s lead preclinical stage regulatory T cells (Treg) therapy, DEL106. The majority of the purchase price is FIGURE 3: BIGGEST GROWING PRODUCTS BY NEW SALES IN 2017 ($bn)* contingent upon certain milestones being met. 1.8 China’s Sanpower Group Co., Ltd. announced the acquisition 1.8 1.6 of Dendreon Pharmaceuticals Inc., an affiliate of Valeant 1.2 1.2 Pharmaceuticals International Inc. for $0.8 billion. Sanpower takes over Dendreon’s first and only commercial product, Provenge, a vaccine for prostate cancer treatment. Dendreon was previously bought by Valeant out of bankruptcy in 2015 for approximately $0.4 million. Valeant will use the proceeds to pay down debt. Keytruda Epclusa Humira Revlimid Ibrance (Merck&Co.) (Gilead) (Abbvie) (Celgene) (Pfizer) CANCER HEPATITIS C RHEUMATOID CANCER CANCER ARTHRITIS * Anticipated additional sales of existing drugs (e.g. helped by broad approval settings) Sources: Evaluate Ltd., KPMG Analysis © 2017 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Germany. The KPMG name and the logo and are registered trademarks of KPMG International. April 2017 | Deal Capsule | 3 Biotech collaborations in immune-oncology Biotech deals outside oncology Bristol-Myers Squibb (BMS) announced an expansion of its By acquiring LifeCell Corp. for $2.9 billion, Allergan PLC collaboration with CytomX Therapeutics Inc. The collaboration enters the field of regenerative medicine, supporting its was initially established in 2014 to focus on the discovery, aesthetic and plastic surgery business. LifeCell’s key assets development and commercialization of novel therapies include dermal matrix products used in breast reconstruction against multiple immuno-oncology targets using CytomX’s and abdominal wall repair. proprietary Probody Platform therapeutics for the treatment Johnson & Johnson (J&J) announced the $30 billion tender of cancer. BMS has contributed approximately $350 million to offer for the shares of Actelion Ltd., a leader in the field of date and plans to extend this to at least $200 million in upfront pulmonary arterial hypertension. This will help to replenish its payments as well as research funding. portfolio following patent expirations. Biotech start-up secures $1 billion VC investment FINANCIAL INVESTORS GRAIL Inc. managed to raise over $0.9 billion through the first close of its Series B financing led by ARCH Venture Partners. Following a competitive bidding process among PE investors Investors include Johnson & Johnson, BMS, Celgene Corp., for STADA, a generics and OTC player, the Executive Board as well as Amazon.com Inc. In its previous Series A funding, and Supervisory Board decided to support Bain Capital LP GRAIL had already secured $100 million. and Cinven Partners LLP’s offer with a value of € 66 per share, including dividend. This equates to an enterprise value of GRAIL aims to detect cancer at an early, still curable stage, around € 5.3 billion. STADA achieved an Adjusted EBITDA of through a simplified blood screening procedure. GRAIL around € 0.4 billion on Adjusted Group Sales of approximately combines leading approaches in computer and data sciences € 2.2 billion in 2016. with population-scale clinical trials and ultra-broad and ultra- deep sequencing. From deep research to driving changes in patient behavior, the opportunities for smart use of data CAPITAL INDEX science and analytics in the life sciences industry are almost limitless. All pharma indices have rebounded after a decline at the beginning of Q1 2017. The Bloomberg Asia Pacific Pharma Index saw the biggest growth by 8.4%, including Takeda with a 6.9% gain. The Bloomberg Europe 500 Pharma Index grew TABLE 1: TOP 10 VENTURE CAPITAL ROUNDS OF 2016 IN LIFE SCIENCES by 6.7%, whereas the S&P 500 Pharma Index increased by COMPANY INVESTMENT ($m) ROUND DATE 4.9%. Moderna Therapeutics 451 Series Undisclosed Aug Innovent Biologics 260 Series D Nov BlueRock Therapeutics 225 Series A Dec Intarcia Therapeutics 206 Series Undisclosed Dec Intarcia Therapeutics 215 Series I Sep Denali Therapeutics 130 Series B Aug UNITY Biotechnology 116 Series B Oct FIGURE 5: DEVELOPMENT OF PHARMA SHARE PRICES Q1 2017 Zal Lab 100 Series B Jan 110 DalCor Pharmceuticals 100 Series B Apr Hengrui Therapeutics 100 Series Undisclosed Jun Sources: Evaluate Ltd., KPMG Analysis 105 100 95 JAN FEB MAR MSCI WORLD INDEX BLOOMBERG EUROPE 500 PHARMA INDEX S&P 500 PHARMA INDEX BLOOMBERG ASIA PACIFIC PHARMA INDEX Sources: Bloomberg, KPMG Analysis © 2017 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Germany. The KPMG name and the logo and are registered trademarks of KPMG International. 4 | Deal Capsule | April 2017 Pharmaceuticals The deal value of the global top 10 completed deals in Q1 2017 was $ 29.7 billion TABLE 1: GLOBAL TOP DEALS COMPLETED IN Q1 2017 CONTINGENT TOTAL BIDDER TARGET THERAPY AREA DATE OF ANNOUNCEMENT VALUE1 PAYMENTS1 VALUE1 C.H. Boehringer Sohn AG Sanofi S.A. - animal health Animal health 27 Jun 2016 12.6 & Co. KG business Takeda Pharmaceutical ARIAD Pharmaceuticals Inc.