Transactions in Chemicals & Pharmaceuticals
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Deal Capsule Transactions in Chemicals & Pharmaceuticals January 2016 We expect further transformational deals in Life Sciences in 2016 as “companies pursue growth aggressively in their chosen areas of specialization. Vir lakShman | Head OF chemicalS & pharmaceUticalS, KPMG IN GermanY ” FIGURE 1: TRENDS IN PHARMACEUTICALS M&A HIGHLIGHTS 813 797 696 727 722 680 643 — 2015 was the year of the mega deal. Pfizer announced the 602 606 616 $ 160 billion acquisition of Allergan, the largest - ever life 298 sciences transaction and the biggest deal of 2015. Dow 199 162 Chemical and Du Pont’s $ 62 billion announced merger is, 132 105 98 similarly, a ground - breaking transaction in the chemicals 83 64 79 72 sector. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 — Big Pharma continues to acquire biotechs to replenish its Deal Value in $ bn. Number of Deals R&D pipeline, as transactions are done increasingly in the Sources: Thomson One, KPMG Analysis earlier R&D stages. FIGURE 2: TRENDS IN CHEMICALS M&A — Transactions in chemicals, on the other hand, are moving 934 947 up the value chain as companies seek to strengthen their 796 814 796 774 733 positions in the high - margin specialties segment. 703 626 81 585 — KPMG’s Deal Thermometer indicates that the 76 74 58 60 53 51 52 environment for M&A activity will remain ‘Hot’ in 40 pharmaceuticals and ‘Moderate’ in chemicals. 32 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Deal Value in $ bn. Number of Deals Sources: Thomson One, KPMG Analysis DEAL THErmOMETER 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) 18.3 18.1 1.5x 1.4x MODERATE 14.2 14.9 0.8x 1% 7% 0.5x 5% 45% COOL 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2014 2015 2015 2016 2014 2015 2015 2016 Sources: Capital IQ, KPMG Analysis Sources: Capital IQ, KPMG Analysis 2 | Deal Capsule | January 2016 Pharmaceuticals Pharmaceutical deal activity continued at a FIGURE 3: TOP COUNTRIES IN PHARMACEUTICALS M&A 2015 frenzied pace during 2015 with the value of 156 AS ACQUIRER AS TARGET the top 10 completed deals doubling to $ 179 151 billion. Strategic repositioning is a key driver for 93 89 pharmaceutical M&A and competition for assets 49 42 has increased further. US remains the most 33 35 34 33 27 29 29 24 24 23 20 active country. 13 10 10 US CHINA FRANCE CANADA UK INDIA JAPAN S. KOREA ITALY GERMANY DEAL FOcuS arEAS Sources: Thomson One, KPMG Analysis Top pharmaceutical players engaged in focused deal making to move into leading market positions by strengthening their Pfizer takes deal frenzy to new level pipelines in their designated core therapy areas. In Q4 2015, Pfizer Inc. and Allergan announced talks In Q2 2015, Actavis PLC acquired Allergan Inc. for $ 70.5 on a potential $ 160 billion merger – the largest-ever billion, creating one of the world’s top 10 pharmaceutical pharmaceutical and third-largest deal across all industries. companies. Actavis took the Allergan name and With a market value over $ 300 billion, the new entity would announced the divestment of its generics business to Teva overtake Johnson&Johnson Services Inc. as the world’s Pharmaceutical Industries Ltd. for $ 40.5 billion, advancing its largest life sciences company. The aligned portfolio including transformation into a branded drugs specialist with a market Botox, Viagra, the Prevnar pneumonia vaccine and treatments cap of $ 110 billion. for Alzheimer’s and rheumatoid arthritis, could initially Through its acquisition of Allergan’s generics business, generate annual sales of over $ 65 billion. The transaction Teva Pharmaceutical Industries Ltd. would reach top would further result in a domiciliation of Pfizer to Ireland. three positioning in over 40 markets and solidify its global Pfizer has a reputation for large -scale transactions with three leadership in generics with a market share of 20%. other deals among the top five in pharma M&A history: In Q4 2015, C.H. Boehringer Sohn AG & Co. KG (BI), the acquisitions of Warner -Lambert Co. for $ 89 billion and announced negotiations with Sanofi. BI would swap its Pharmacia Corp. for $ 60 billion in the early 2000s and that of consumer healthcare business (excluding China), worth Wyeth for $ 67 billion in 2009. € 6.7 bn., for Sanofi’s animal health business, worth € 11.4 bn.; and pay € 4.7 bn. Sanofi would become number one in consumer health care with estimated 2015 proforma sales MARKET OUTLOOK of € 5.6 billion. At the same time, through complementing its (based on a survey conducted by KPMG in collaboration with companion animals, poultry and swine portfolios, BI would Mergers & Acquisitions magazine) become the number two animal health player with estimated 2015 proforma sales of € 4.2 billion. — Technology and pharmaceuticals/biotechnology are expected to be the most active industries for M&A in Growing public debate over drug pricing 2016. Prescription drug hikes by companies such as Turing — Pharmaceuticals/biotechnology M&A activity will be Pharmaceuticals LLC and Rodelis Therapeutcal caused driven by the need to access clinical research and by political outrage with US presidential candidate Hillary Clinton patent expirations for many leading drugs. presenting a Plan for Lowering Prescription Drug Costs in Q3 — Most active markets will be North America and Western 2015. Uncertainty among investors negatively impacted share Europe prices. © 2016 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. January 2016 | Deal Capsule | 3 FIGURE 4: DEAL ACTIVITY BY TARGET’S MAIN THERAPEUTIC AREA IN 2015 Number of deals Deal Value in $ bn. 8 52.0 Oncology & Immunomodulators 7 14.6 Cardiovascular 2 2.6 Central Nervous System 1 160.0 Respiratory, Otology & Ophthalmology 2 33.3 Blood & Musculoskeletal 1 1.0 Endocrine & Genito-urinary 2 16.6 Gastro-intestinal 2 3.5 Systemic Anti-infectives 11 81.1 Generics & Biosimilars 1 7.3 Over-the-counter 3 16.1 Animal Health 6 19.5 Multiple Sectors All pharma deals announced in 2015 (unless withdrawn) and with a deal value greater than $1 billion are considered. Sources: Thomson One, EvaluatePharma, KPMG Analysis CAPITAL INDEX BIOTECH All pharma indices outperformed the market in 2015. Both, Big pharma is rapidly buying Biotech’s rare disease portfolios. the European (+11.6%) as well as the Asian Pacific index For instance, Alexion Pharmaceuticals Inc. acquired Synageva (+23.8%), rose strongly while the US index recorded only BioPharma Corp. for $ 8.4 billion in Q2 2015. With eight moderate growth of 3.3%. clinical trial candidates (several are designated breakthrough therapies with FDA priority review status) and over 30 FIGURE 5: DEVELOPMENT OF PHARMA SHARE PRICES 2015 preclinical programs across diverse therapy areas, Alexion will have one of biotech’s most robust rare disease pipelines. 130 125 In Q4 2015, Shire PLC announced the acquisition of rare 120 disease specialist Dyax Corp. for $ 6.5 billion, securing 115 Shire’s hereditary angioedema portfolio. Its lead fast 110 track, breakthrough therapy and orphan drug-designated 105 phase three-ready product, DX- 290, is considered to have 100 blockbuster potential. At the time of publication, Shire had 95 increased its bid for Baxalta to $ 32 billion. This would further 90 strengthen Shire’s rare disease portfolio. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AstraZeneca PLC (AZ) has also been replenishing its pipeline MSCI World indeX bloomberg EUrope 500 pharma indeX S&P 500 PHARMA INDEX bloomberg ASIA PACIFIC pharma indeX through acquisitions. AZ acquired ZS Pharma Inc. for $ 2.7 billion to bolster its cardiovascular and metabolic disease Sources: Bloomberg, KPMG Analysis portfolio through accessing ZS- 9, a possible best- in- class FIGURE 6: DEALS PER R&D Stage OVER LAST 2 YEARS* in % specialty treatment for hyperkalaemia. AZ is also pursuing a deal with Acerta Pharma BV for $ 4 billion, adding an 30.6 2014 2015 experimental drug for leukaemia, lymphomas and other 28.6 26.2 26.5 cancers to its portfolio. 19.0 18.4 16.3 14.3 11.9 8.2 Pre-Clinical Phase I Phase II Phase III Filed *All deals >$500 bn. for which R&D data is available. Sources: Thomson One, KPMG Analysis © 2016 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 | January 2016 Pharmaceuticals The deal value of the global top 10 completed deals in 2015 was TABLE 1: GLOBAL tOP DEALS COMPLETED IN 2015 $ 179 billion CONtiNgeNT TOtaL BIDDER TARGET THERAPY AREA VALUE1 payMENTS1 VALUE1 Ophthalmology, neurosciences, dermatology, Actavis PLC Allergan Inc. 70.5 cosmetics and urology AbbVie Inc. Pharmacyclics Inc. Cancer and immune mediated diseases 21.0 Generics, injectable drugs (e.g. acute care Pfizer Inc. Hospira Inc. and oncology), infusion technologies, and 17.0 biosimilars Novartis AG GlaxoSmithKline PLC – Oncology Business Oncology 14.5 1.5 16.0 Valeant Pharmaceuticals Salix Pharmaceuticals Ltd.