PwC Report: Pharmaceutical M&A Increasing; India Growing Sales Market
By Louis Garguilo, Chief Editor, Outsourced Pharma
by Louis Garguilo, Executive Director, Outsourced Pharma
Outsourced Pharma got an early-bird look at the Pharmaceutical and Life Sciences Deals Insights Quarterly analysis of M&A for Q1 2014 announced by press release today by PwC US (PricewaterhouseCoopers LLP).
The results are impressive for all areas of the Pharmaceutical and Life Sciences (PLS) sector. In total, M&A volume increased 53.1 percent in the first quarter of 2014 compared to the fourth quarter of 2013. Company sentiment is trending in the right direction for more activity.
“CEOs are increasingly optimistic about their companies’ prospects and are seeking opportunities to grow their businesses through adopting new technologies, optimizing shareholder value and diversifying their portfolios,” said Dimitri Drone, U.S. pharmaceutical and life sciences deals leader, PwC.
As well as deal volume, the value of PLS deals closed during the first quarter of 2014 increased 20.9 percent to $44.9 billion, relative to the approximately $37.2 billion in the fourth quarter of 2013, and increased 122.6 percent relative to the first quarter of 2014, excluding the IPO of AbbVie, according to the analysis.
Excluding all megadeals (deal values greater than $10 billion), deal value in the first quarter increased by 2.8 percent, compared with the fourth quarter of 2013, and by more than 300 percent compared with the first quarter of 2013. Despite the media attention that megadeals generate, this data demonstrates that the increase in activity is not dependent upon or overly driven by them; deal-making on all levels is widespread throughout the industry.
The report shows medical device manufacturers led deal flow in all PLS sectors, with 19 deals in the first quarter. According to the report, these companies are evaluating opportunities that impact their businesses through adopting new technologies to improve patient experiences and outcomes.
Pharmaceutical companies completed 16 deals in the first quarter. Pharma continues to seek opportunities to unlock shareholder value through divestitures while gaining strength in their core businesses. Some recent and highly publicized examples of this are GSK and Novartis combining/swapping scientific assets, Bayer acquiring Merck’s consumer care business, and of course the attempt by Pfizer to acquire AZ. The PwC report suggests we stay tuned; there should be more to come this year.
Moreover, biotechnology companies continue to add to the pressure on pharma as they look to both diversify their product portfolios and gain scale through M&A.
Even the diagnostics and services sectors, after a recent pause in deal activity, returned with a renewed focus on R&D effectiveness, advances in personalized medicine, and the emergence of new technologies – a trend that is likely to drive continued M&A interest in this sector.
A few of the key deals described in the PwC report are:
- Thermo Fisher Scientific completed its acquisition of Life Technologies for approximately $15.5 billion in cash and assumed debt. Life Technologies is a global life sciences company that provides a range of products and services for research and commercial applications, including systems, instruments, reagents, and software.
- Shire completed its acquisition of the shares of ViroPharma, a manufacturer and developer of therapeutics for the treatment of rare diseases, for $50 per share or total consideration of $4.2 billion.
- DSM Pharmaceutical Products, a unit of Royal DSM NV, acquired the shares of Patheon, a manufacturer of pharmaceutical products, from JLL Partners Inc. for $9.32 per share or a total value of $1.4 billion.
- On January 2, Salix Pharmaceuticals acquired the shares of Santarus, a biopharmaceutical company with a focus on gastroenterology, for $32 per share or total consideration of approximately $2.7 billion.
The report also mentions its outlook for the outsourcing sector of the PLS industry: “Contract research organizations and contract manufacturing organizations are likely to continue to attempt to gain the scale necessary to serve an increasingly global base of customers in the pharmaceutical and biotechnology industries.”
Taken as a whole, “We can expect to see continued PLS M&A activity in 2014 as strong equity markets, overall economic stability, and trends within the individual sectors are creating an environment ripe for further investor interest in the industry,” concluded PwC’s Dimitri Drone.
India As A Market (Not CRO/CMO Center)
There has been a bright light of international interest shining on India regarding its prowess and some problems as an outsourcing center to the global pharmaceutical industry. (Outsourced Pharma has written a number of articles on the India CMO industry recently.) So much light has been focused on this country that it might have blinded some to the fact that India continues to grow in importance to the industry as a pharmaceutical sales market. The Pharmaceutical and Life Sciences Deals Insights Quarterly analysis turns the focus to this vital aspect of India and its place in the global economy overall.
According to the report, the Indian healthcare market has enormous potential, and pharmaceutical and PLS companies are ramping up their investments in the country accordingly. India has an established domestic PLS industry, and demographic and economic trends suggest that India is among the countries most poised for growth in the industry throughout the next decade and beyond.
The India market analysis identifies four positive areas positively impacting growth.
- Changing disease profile and favorable demographics
- Active participation by foreign PLS companies
- Exports to regulated and semi-regulated markets
- Growing alliances in emerging markets
The analysis also points out some factors that need to be overcome to allow the market to grow to its full potential. First, India faces regulatory changes affecting sales and marketing practices that impact both how clinical trials are conducted and how products are priced in the marketplace. The market is also subject to relatively strict price controls, and consumer organizations continue to advocate for expansion of the Drug Price Control Order. Also, under India’s Patents Act, the government may grant compulsory licenses in some circumstances, other than national emergencies and public health crises.
The overall economic outlook for India is positive. After recovering from the global economic downturn, the Indian economy grew to an estimated $1.9 trillion in 2012, making it the world’s 10th largest, with expectations for greater growth ahead. The PwC analysis cites the World Bank projections of real gross domestic product (GDP) growth to reach 5.7 percent in 2014, up from estimated growth of 4.8 percent in 2013. Forecasters have also suggested that India will be the only emerging economy to maintain highly accelerated GDP growth over the longer term, according to PwC.
Finally, no analysis of India can end without mentioning the sheer size of the population. According to PwC, at more than 1.2 billion and projected to increase to 1.6 billion by 2050, India is set to become the most populous country in the world, outpacing even China.