U.S. Pharmaceutical M&A Activity Overview

Mergers and acquisitions activity in the pharmaceutical industry has been on the rise for the past several years. 2014 saw several of the largest deals in the pharmaceutical industry to date, including the $66bn purchase of Allergan by Actavis. 2015 will likely be an even bigger year for pharmaceutical deals. 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.

Factors Driving Acquisitions

The recent wave of large M&A deals has been driven by obvious opportunities for revenue growth, cost synergies, tax inversion, and cash utilization. A less well documented driver for M&A activity in the industry, however, has been the interest in small to mid-sized companies with new product approvals. While these deals are typically much lower in value, they in fact make up the majority of pharmaceutical M&A activity completed since January 2015. Several themes are apparent in the small to mid-sized companies that were recently acquired:

  • 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

New Drug Approval as an Acquisition Trigger

Capgemini Consulting research shows that new drug approval is a major trigger for acquisitions. Recently larger pharmaceutical companies have been struggling to consistently develop new drugs. Smaller, research-focused companies therefore are attractive potential assets. Small to mid-sized companies make up 58% of drug approved since January 2014. Of these 33% were acquired by another company. And nearly all of the companies with new drugs were acquired within six months of receiving new drug approval from FDA.


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.

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. 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.

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.


For companies that fit this profile, there are few steps companies can take to be better prepared for such a scenario:

  • 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

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