Expect to see the ink flowing freely again this year as companies sign their names to partnership agreements and M&A deals. This momentum will follow on from an active fourth quarter of 2013 when the pharmaceutical and life sciences (PLS) merger and acquisition (M&A) volume and value increased, finishing the year for deal activity on a high note, according to Pharmaceutical and Life Sciences Deals Insights Quarterly, an analysis of M&A trends and outlook for the PLS sector issued by PwC last week.

The analysis recorded 31 PLS transactions, that embraced the medical devices sector in addition to pharmaceutical companies, in the fourth quarter of 2013, a 24 percent increase compared to 25 deals in the third quarter of 2013. Total deal value also jumped more than 100 percent to $37.1 billion in the fourth quarter compared to approximately $18 billion in both the third quarter of 2013 and the fourth quarter of 2012.

More specifically, BioWorld Snapshots recorded 16 M&A deals involving biopharmaceutical companies, the same number as were concluded in 2012. Total deal values were $12.1 billion in the fourth quarter of 2013 and $16.1 billion for the same period in 2012.

“We expect the momentum of M&A activity in the fourth quarter, driven by macroeconomic stability and growth in key markets, to continue into 2014 as acquirers remain active in the market,” noted Dimitri Drone, U.S. Pharmaceutical and Life Sciences Deals Leader, PwC. As far as M&A strategies are concerned, Drone said they are seeing “a continued focus on successful execution and PLS companies are continuing to use earn-outs and other deal tools to bridge value gaps, share risk, and complete deals.”

UNLOCKING VALUE

On an annual basis, deal volume decreased by 15 deals – or 11 percent – in the full year of 2013, but deal value rose nearly 46 percent compared to 2012. While deal values totaled more than $140 billion in 2013, the PLS industry didn’t experience any mega deals that were prevalent in years past. Rather, large pharmaceutical companies focused on rebuilding their product pipelines through acquisitions of relatively smaller biopharmaceutical players, as well as balancing their own product portfolios and seeking to unlock value through divestitures, according to PwC.

The analysis recorded 11 divestitures completed in the fourth quarter of 2013, representing a total value of $3.8 billion, as they continue to be a key component of PLS companies’ strategies to maximize shareholder value. Additionally, strategic buyers continue to account for the majority of M&A activity in the PLS industry. While financial buyers remain active in deal processes, the report notes that potential synergies and other benefits of transactions have driven a higher rate of success for strategic acquirers.

Looking at the PLS industry sectors, pharmaceutical companies represented 12 deals in the fourth quarter, they continued to face increased competition in dealmaking from biotechnology companies seeking to gain scale and mitigate risk through a more diverse product portfolio. The diagnostics and services sectors remained relatively quiet in the M&A market throughout 2013; however, these sectors may see a return to dealmaking over the next year.

“Looking forward, healthy balance sheets, access to financing, and strong equity markets will allow PLS deal makers to continue to seek opportunities to grow through acquisition across industry sectors in 2014,” concluded Drone.

The way M&A deals are structured is also changing according to Thomson Reuters Recap’s comprehensive analysis of 2013 biopharma dealmaking. For example, options to acquire therapeutic assets are moving upstream, even to the point of a company’s formation. “Back end” load on asset value and future risk mitigation are less frequent, with less than one-fifth of M&A’s – 57 of 308 disclosed deals – keeping contingent value on the back end. (See BioWorld Insight, Jan. 27, 2014.)

BREAKTHROUGH DEAL OF THE YEAR

Drawing from last year’s deals, senior analysts at Thomson Reuters Recap have compiled 10 of the most innovative deals that took place in M&A and licensing. This distinguished list of deals will be in the running to capture the Breakthrough Alliance Awards 2013.

Although Laura Vitez, senior deals analyst, who was responsible for compiling the five candidate M&A deals on the list, wasn’t revealing any details about who made the cut, she did tell BioWorld Insight “that the keyword reflecting this year’s nominees is ‘breakthrough’ deal, and, while important, the blockbuster deals valued at $2 billion and above, aren’t what you’re going to see.”

Since the Allicense event currently remains focused on therapeutics, the candidate list will come from this universe of M&A deals. According to the Recap 2013 deal analysis therapeutic products were the target of 55 percent of life sciences M&A’s, representing $60 billion in deals.

“This factor reflected in the focus of the nominee M&A deals – cancer, infectious disease and dermatology,” Vitez said.

“Creativity among the licensing and partnering deals will be reflected in the nominees for this category,” Vinay Singh, senior deals analyst at Thomson Reuters Recap, told BioWorld Insight. “This is because pharmas and biotechs are approaching dealmaking in a manner not seen in years with both parties at the negotiating table willing to build in risk mitigation in their arrangements.”

We won’t have to wait long before the list of nominees for the Breakthrough Alliance Award 2013. Thomson Reuters Recap will discuss the list in a webinar, 2013 Deal of the Year, Feb. 18. Then the industry will have its chance to vote and the winners will be announced at Allicense 2014 that will be held April 29-30, 2014, in San Francisco. The theme of this year’s meeting is “The Next Generation of Dealmaking,” which will be explored by over 30 leading industry thought leaders in a series of panels.

Editor’s note: Read next week’s issue for details on the nominees who have been selected for the award.