1.
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Pharmaceutical Mergers and
Acquisitions in the U.S.
Analyzing the correlation between new drug approvals and M&A activity
2015

2.
2 Pharmaceutical Mergers and Acquisitions in the U.S.
Key Findings
• Since 2014, the pharmaceutical industry
has seen a wave of larger M&A deals
driven by opportunities for revenue
growth, cost synergies, tax inversion, and
cash utilization
• While megadeals (deals greater than
$5bn) have inflated deal value, the deal
volume has been driven by smaller,
product-focused acquisitions
• Over the past decade, there has been
an increase in the valuation multiples
that pharmaceutical and biotechnology
companies have received
• New drug approval is an acquisition trigger;
approximately one third of small and mid-
sized pharmaceutical firms (companies
with less than $15bn in 2014 revenues) that
received approval from Food and Drug
Administration for a new product were
acquired; 90% of these product-driven
acquisitions happened within six months of
FDA approval
U.S. Pharma M&A
Activity Overview
Since 2010, approximately 200 pharmaceutical
and biotech deals have taken place per year in
the United States. In 2014, only 182 major
deals took place, lower than average (~190).
However, 2014 surpassed the combined value
of deals from 2011-2013 ($178bn) and saw
over $200bn in mergers and acquisitions, a
300% increase from the previous year.
2014 saw several of the largest deals in the
pharmaceutical industry to date, including the
$66bn purchase of Allergan by Actavis, Merck
unloading its consumer health unit to Bayer,
GSK and Novartis’ multibillion-dollar asset
swap, as well as Novartis’s animal health unit
sale to Eli Lilly.
2015 will likely be an even bigger year for
pharmaceutical deals. Companies are
constantly looking for opportunities to bolster
portfolios and increase shareholder value. Over
$150bn of merger and acquisition activity was
recorded by U.S. pharmaceutical industry
through August 2015, and this figure will likely
exceed $220bn by year-end.
There has also been a shift in deal value from
2013 to 2014. The average deal size in 2013
was approximately $40m, while the average
deal size in 2014 was over $1bn, underscoring
industry’s appetite for larger deals.
Figure 1: Size and number of deals by U.S. pharmaceutical and biotech companies since 2007
Source: FiercePharma, EvaluatePharma, Capgemini Analysis
$70
$109
$152
$109
$56
$43
$79
$212
$151
$73
170
188
171
194
197
192 193
182
100
125
150
175
200
225
0
50
100
150
200
250
2007 2008 2009 2010 2011 2012 2013 2014 2015
DealCount
DealValue($Bn)
Year
M&A Activity in Pharma and Biotech
Deal Value Projected Deal Count
2014 surpassed the
combined total for
deals from 2011-
2013 and saw
over $200bn in
pharma mergers and
acquisitions, a 300%
increase from the
previous year’’

3.
3
Factors Driving
Acquisitions
The size of recent deals disguises the true
characteristics of pharmaceutical mergers
and acquisitions activity. Although major
acquisitions outweigh other deals by value,
over 90% of deals were relatively small in size
(less than $5bn) (see Figure 2). The difference
in deal value appears to be driven by different
motives. For megadeals, motivations from
large pharmaceutical companies, such as
top-line increases, cost synergies, tax
inversion or cash utilization, frequently came
into play. In contrast, the smaller deals tended
to be much more focused, with target
companies offering different sources of value
to the acquirer, such as research or portfolio
expertise, a breakthrough pipeline drug, or a
recent drug approval.
A closer look at recent drug approvals reveals
an interesting correlation with acquisitions of
small and mid-sized companies. Of the 105
drugs approved in the U.S. since January
2014, 58% were filed by companies with less
that $15bn in 2014 revenues (see Figure 3). Of
the 16 large companies (with 2014 revenues
greater than $15bn) that had one or more
new drug approvals in the past 20 months,
none were acquired within the same period.
In comparison, 26% of small to mid-sized
pharmaceutical companies with new drug
approvals were acquired within that time
period. The fact that the small and mid-sized
companies acquired since January 2014
typically had no more than a few approved
products supports the observation that the
motivations behind large deals are very
different than those behind smaller deals.
So what makes a particular small to mid-
sized pharmaceutical company attractive
to potential acquirers? Following factors
have been resonant themes across
recent acquisitions:
• New drug approval with promising
estimated peak sales
• Special FDA status for existing or pipeline
products (breakthrough therapy, fast track
review, orphan drug designation, priority
review)
• Proven R&D leadership in a specific
technology or therapeutic area
• Relatively small market capitalization
Figure 2: U.S. pharmaceutical and biotech deals by value and count since January 2014
Source: FiercePharma, CrunchBase, EvaluatePharma, Capgemini Analysis
89%
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Megadeals
($5 bn+)
Other Deals
(< $5 bn)
Deal Value
6%
94%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Megadeals
($5 bn+)
Other Deals
(< $5 bn)
# of Deals
26% of small to mid-
sized pharmaceutical
companies with new
drug approvals were
acquired in past 20
months’’

4.
4 Pharmaceutical Mergers and Acquisitions in the U.S.
Figure 3: New drug approvals by FDA since January 2014 across companies
Source: FDA, Capgemini Analysis
New Drug Approval as
an Acquisition Trigger
Any acquisition is a result of various
interrelated factors. Failure of bigger
pharmaceutical companies to consistently
develop new drugs and pressure from
shareholders to deliver returns have forced
large pharmaceutical companies to look
outside for innovative drugs. This has resulted
in new drug approvals emerging as a major
trigger for acquisitions. Capgemini Consulting
collected the data for all the new drug
approvals from January 2014 through August
2015 to analyze the correlation between new
drug approvals and acquisitions. Companies
that received the approvals were segmented
into large, mid-size and small based upon
their 2014 revenues (large >=$15bn, $15bn <
mid <$5bn, small <=$5bn).
Since there were no acquisitions in the large
segment over last 20 months, the analysis
focuses on the small to mid-sized
pharmaceutical companies. Figure 4 shows
the correlation between small to mid-sized
pharmaceutical companies, that were
acquired in last 20 months with the new
drug approvals.
As seen in Figure 4, all companies, with the
exception of Chelsea Therapeutics, were
acquired within six-months of obtaining FDA
approval. Excluding Forest Laboratories, in
cases where a company was acquired prior to
drug approval [denoted by (-)], the period
between approval and acquisition was less
than six months, meaning that the drug was
under FDA review when the deal was finalized.
Not surprisingly, in the two cases (Zerbaxa and
Natpara) where the drug was expected to be a
blockbuster, the company was acquired within
days of receiving FDA approval.
Of the small and mid-sized companies with
new drug approvals that have not yet been
acquired, four have already been predicted by
Wall Street as the next probable targets.
Furthermore, some of the companies with
new drug approval possess certain
characteristics that make them unattractive
acquisition targets. Some companies, such
as Mannkind and Pharming Group, have
strategically established relationships with Big
Pharmaceutical companies that deter other
companies from attempting an acquisition.
Others, such as Knight Therapeutics and The
Medicines Company, have opted to increase
their market capitalization through
Most small to mid-
sized pharmaceutical
companies that
received new drug
approval from FDA
were acquired within
six months.’’
42%
13%
45%
Recent Drug Approvals (since January 2014)
Large Pharma (2014
Revenue > = $15bn)
Mid-Sized Pharma
Small Pharma companies
(2014 Revenue < = $5bn)

5.
5
Figure 4: Relationship between new drug approval and acquisition for small- and mid-sized pharmaceuticals since
January 2014
acquisitions of their own. The remaining few
are too small to be attractive acquisitions (i.e.
single product companies with less than
$100mm projected peak sales).
Hence, any small to mid-sized pharmaceutical
company nearing a product approval from
FDA should consider potential acquisition as a
risk and take necessary steps to prepare for it.
Source: Capgemini Analysis
2014
Jan Feb March April May June July Aug Sept Oct Nov Dec Jan Feb March April May June July Aug
2015
FDA Approval Date
Acquisition Date
Product (Acquired / Buyer)
$100-
200M
$200-
300M
$300-
400M
$400-
500M
>$1B$500M-
1B
Estimated Peak Product Sales
Time Elapsed Between New Drug Approvals
and Acquisitions
Legend
Northera
(Chelsea Thpts / Lundbeck)
Sivextro
(Cubist / Merck)
Zerbaxa
(Cubist / Merck)
Cholmbam
(Asklepion / Retrophin)
Esbriet
(InterMune / Roche)
Natpara
(NPS / Shire)
Addyi
(Sprout / Valeant)
Kybella
(Kythera Biopharma / Allergan)
Dalvance
(Durata Therpeutics / Actavis)
(-)3 mths
Soolantra
(Galderma / Nestle)
(-) 5 mths
(+) 6 mths
(+) 15 mths
(-) 3 mths
(+) 5 mths
(-) 2 mths
Namzaric
(Forest Laboratories / Actavis)
Imbruvica
(Pharmacyclics / Abbvie)
Xifaxan
(Salix Pharmaceutical / Valeant)
(-)2 mths
(+) 6 mths
(-)10 mths

6.
6 Pharmaceutical Mergers and Acquisitions in the U.S.
Figure 5: Median EBITDA multiple paid to acquire pharmaceutical and biotechnology companies, 2007-2015
Source: Bloomberg, Capgemini Analysis
Valuation
One of the first steps that a pharmaceutical
company can take to be better prepared for a
potential acquisition is to have an estimate of
their own valuation. Over the past decade,
there has been an increase in acquisition
prices for pharmaceutical and biotechnology
companies. Acquisition prices in 2015 are
highest relative to EBITA and revenue in last
20 years. Also market is eager to invest and
pay rich multiples for potential high payout
that exists.
The valuation process for pharmaceutical and
biotechnology companies presents a
challenge, as products in the early stages of
development have no product revenue on
which to base a valuation. Nevertheless,
valuations are continuously being performed
and adjusted, using available data, while also
being influenced by investor speculations
regarding the value of a particular company
or pipeline product. Due to lack of
transparency in the process, it is not rare to
find instances where pharmaceutical and
biotechnology companies sell promising
products, based on very low valuations, and
these products later, and sometimes very
quickly, become significantly more valuable.
Examples of these errors in valuation span
across disease areas, and include such
products as Zytiga, a drug that treats
prostrate cancer in men which became a
$2bn drug (sold by BTG for ~$6mm a year
royalty), and Cubicin, used to treat bacterial
infection with annual sales of over $1bn (sold
by Eli Lilly for less than $50mm).
These challenges are more pronounced in
valuing orphan drugs. Orphan drugs have
small patient population coupled with the
attractive pricing structure of the market.
This magnifies the errors in valuation process
leading to variance that can completely skew
the numbers.
Given the high degree of uncertainty and
reliance on assumptions that exist in
valuations for pharmaceutical and
biotechnology companies, as well as the
increase in deal value, it is becoming
increasingly important for these companies to
select their partners carefully, so as to ensure
that these valuations incorporate all relevant
information.
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014 2015
MedianEBITDAMultiple(x)
Pharmaceutical and Biotechnology Median
Acquisition Multiples
Pharmaceutical
multiples have
steadily increased
over past 20 years’’
It is important for
pharmaceutical
companies to
select their valuation
partners carefully’’

7.
7
Implications
What are the implications for small to
mid-sized companies that are in the process
of developing and launching new drugs?
There are a few steps that the potential target
company can take to be better prepared for
such a scenario. These are:
• Remain informed of current market
focus and incentives for mergers and
acquisitions, specifically related to types of
products and portfolios
• Estimate their global valuation, including
value of both the lead product as well as
the pipeline
• While performing valuations, select
partners carefully so as to ensure that
all relevant information is appropriately
captured
• Get a better understanding of the
corporate law of their home country as well
as that of the U.S.
• Review their ownership structure and have
a plan ready to respond to any unsolicited
third-party interest
• Develop relationships with key investors
to ensure their ongoing commitment and
understand relevant motivations
• In the case that the company is open
to a merger or acquisition, they should
proactively identify potential companies
that might be a good strategic fit
• Identify acquisition targets of their own
to increase market capitalization and
deter acquisition
References
1. “2014 FDA Approved Drugs” CenterWatch. Accessed September 2, 2015 2. Acquisition details from BioSpace. Accessed
September 2, 2015 3. Company profiles from CrunchBase. Accessed September 2, 2015 4. Gardner, J. & Urquhart, L. (2015) “Pharma
and Biotech Half-Year Review”. Evaluate Ltd., Accessed September 2, 2015 5. Helfand, C. & Palmer, E. (2015) “Pharma’s top 10 M&A
deals of 2014”. FiercePharma. Accessed September 2, 2015 6. Helfand, C. & Palmer, E. (2014) “Pharma’s top 10 M&A deals of 2014’s
first half”. FiercePharma. Accessed September 2, 2015 7. Lachapelle, Tara (2015) “Drug Takeover Valuations Soar as Par Pharma
Gains 300%”. Bloomberg data. Accessed September 20, 2015 8. Jarvis, L.M. (2015) “The Year in New Drugs”. Chemical & Engineering
News, 93(5): 11-16 9. “Orphan Drug Report” EvaluatePharma, 2014

8.
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The information contained in this document is proprietary. ©2015 Capgemini.
All rights reserved. Rightshore®
is a trademark belonging to Capgemini.
About the Authors
Sheetal Chawla is Principal Consultant at Capgemini Consulting and leads Digital and Commercial Strategy in the
North America Life Sciences practice (New York). She has more than 12 years of experience in business strategy,
market analytics, marketing and business development / valuation. In her role, she advises clients on commercial,
launch and patient strategies, digital transformation, and portfolio / profit optimization, among other topics. She can
be reached at sheetal.chawla@capgemini.com
Rohit Bansal is Managing Consultant at Capgemini Consulting within North America Life Sciences practice (New
York). He has over 10 years of experience of working with pharmaceutical clients in the area of commercial strategy,
process optimization, business analytics and planning. His areas of expertise are market potential assessments and
transformative business strategy development. He can be reached at rohit.bansal@capgemini.com
Contributors
Alexandra Alpaugh, Capgemini Consulting – New York
Betsy Dolan, Capgemini Consulting – New York
Rohit Mahajan, Capgemini Consulting – New York
The information contained in this document is proprietary. ©2015 Capgemini.
All rights reserved. Rightshore®
is a trademark belonging to Capgemini.
About Capgemini Consulting
Capgemini Consulting is the global strategy and transformation consulting organization of the Capgemini Group,
specializing in advising and supporting enterprises in significant transformation, from innovative strategy to execution
and with an unstinting focus on results. With the new digital economy creating significant disruptions and
opportunities, our global team of over 3,600 talented individuals work with leading companies and governments to
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transformation and organizational change.
For more information:
www.capgemini-consulting.com
About Capgemini
With 180,000 people in over 40 countries, Capgemini is one of the world’s foremost providers of consulting,
technology and outsourcing services. The Group reported 2014 global revenues of EUR 10.573 billion (about $14
billion USD at 2014 average rate). Together with its clients, Capgemini creates and delivers business, technology
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