Global Pharma and Life Sciences deals insights: Q3 2019

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Continued strength in PLS deal activity sets the stage for a busy remainder of the  year.

PLS deal volume remained robust during Q3 2019, while deal value declined compared to the first two quarters of 2019. The two megadeals announced this quarter results in the total number of megadeals for 2019 being higher than all of 2018. While not reflected in the statistics, the combination of Mylan with Pfizer’s Upjohn business highlighted the quarter as companies continue to look for creative means of executing on their strategic agendas. Five of the ten largest deals for the quarter included targets based in the US with international buyers that continue to make inbound investments in the US.

“Consistent deal volume across all PLS sub-sectors shows acquirers are continuing to reshuffle their portfolios and put their capital to work, while lower dollar value in Q3 2019 is just a function of the expected pause in megadeals.”

Glenn Hunzinger, US PLS Deals Leader

Trends and highlights

  • After two consecutive quarters that included individual deals with values of more than $80B, total deal value in Q3 2019 was down significantly. However, the Q3 deal value of $42B was higher than Q2 excluding the AbbVie-Allergan deal.
  • Deal volume has increased in each of the last two quarters and hit the second highest level seen in the last two years.
  • The proportion of megadeal value to total deal value in Q3 2019 was at its third lowest level since 2016. Similarly, the median deal value for Q3 was $91M, which is the lowest quarterly median since Q1 2017.

Highlights of deal activity

Pharma and Life Sciences sub-sector analysis

The largest deal of the quarter was within the Biotech sector (Amgen’s $13.4B acquisition of Otezla from Celgene), followed by Pharma (Elanco’s $7.6B acquisition of Bayer’s animal health business). Consistent with recent trends, the Pharma sub-sector maintained its place as the volume leader. However, the Biotech sub-sector contributed more than half of the sector’s total deal value for Q3, despite having only the third highest deal volume across the four PLS sub-sectors.

Pharma and Life Sciences deals outlook

Q3 2019’s deal activity exemplifies several recent trends that are likely to drive deal activity in Q4 2019 and throughout 2020. Despite rising concerns around geopolitical risks and global economic growth, industry participants are deploying significant capital resources to accomplish a variety of goals, including achieving economies of scale and rebalancing product portfolios. The innovation in PLS has never been more exciting, and companies are placing investments in therapeutic areas where they wish to compete for the long term.

Aside from traditional M&A, the industry continues to find innovative ways to achieve their strategic goals. The announced spin-off of Upjohn from Pfizer and its subsequent combination with Mylan illustrates how companies are looking to drive shareholder value through means other than direct M&A.

The acquisition of Bayer’s animal health business by the newly independent Elanco demonstrates the need for companies to achieve economies of scale to be successful in a highly competitive sector. Despite the industry’s emphasis on scale, regulatory attention centered on antitrust concerns generated by several recent acquisitions may limit some industry player’s willingness to execute the megadeals that have driven record levels of deal activity in recent years.

In the face of political uncertainty related to tariff and tax law changes, such as the status of the Medical Device Excise Tax, which has a moratorium set to end in January 2020, companies located in the US remain attractive targets for both domestic and international acquirers.

As the industry evolves and adapts to new global and local challenges, we expect deal activity will likely remain high as industry participants will need to move quickly to acquire critical capabilities and strategic advantages to remain competitive. While factors such as the 2020 US elections and the status of Brexit may limit some acquirers in the short-term, M&A remains an attractive tool for industry participants to deploy in order to achieve their strategic agendas.

About the data

We define M&A activity as mergers and acquisitions in which targets are US-based companies acquired by US or foreign buyers, or foreign targets acquired by US or foreign pharmaceutical and life sciences companies. We define divestitures as the sale of a portion of a company (not a whole entity) by a US-based or foreign seller. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement date for transactions with a disclosed deal value greater than $15.0 million, as provided by Capital IQ, as of September 30, 2019, and supplemented by additional independent research.

Information related to previous periods is updated periodically based on new data collected by Capital IQ for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Capital IQ and includes deals for which buyers or targets fall into one of the PLS industry sub-sectors: biotechnology, medical devices, pharmaceuticals, or other (such as contract manufacturing organizations). Certain adjustments have been made to the information to exclude transactions that are not specific to the PLS industry. Capital market and equity return information is sourced from Capital IQ.

Contact us

Glenn Hunzinger

Pharmaceutical and Life Sciences Deals Leader, PwC US

Brian Geiger

Principal, Deals, PwC US

James Woods

Principal, Deals, PwC US

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