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At a glance
The second quarter of 2013
showed a decline in deal
volume and value in the
pharmaceutical and life
sciences sector. This took
place after an uptick in
deal activity in the first
quarter of 2013 driven by
several large transactions.
A significant number of
announced transactions
in the second quarter and
strong fundamentals suggest
heightened activity in the
second half of the year.
We turn our focus to the
deal market in Brazil, which
is projected to become the
worlds fifth-largest economy
within the next decade.
We also spotlight the impact
of the Foreign Corrupt
Practices Act on deal-makers
in the Pharmaceutical and
Life Sciences industry and
leading practices related to
corruption due diligence.
This issue of Pharmaceutical and Life Sciences Deals Insights Quarterly brings you PwCs
perspective on deal activity in the industry. Each quarterly publication features
threesections:
1. M
arket update: A summary of M&A deals and trends in the previous quarter. This issue
covers Q2 2013.
2. C
ountry spotlight: An update on deals in selected geographies. This issue focuses on
Brazil which, while poised to become the worlds fifth-largest economy within the next
decade, presents risks and challenges for deal-makers.
3. S
trategy corner: A feature offering tips and insight on different aspects of deal-making.
This issue focuses on the Foreign Corrupt Practices Act, the risks to acquirers arising from
successor liability, and leading practices deal makers are using to identify and
mitigaterisk.
Refer to our prior publications to gain insights into doing deals in other geographic markets
and to learn the aspects of successful transactions. All of our quarterly deals publications
are available at www.pwc.com/us/deals.
Q4:2012
Doing deals in China
Driving divestiture success
Five critical components
Q1:2013
Southeast Asia comes of age
Refining the price-value
equation
Market update
Deal volume and value declined in the second quarter while
fundamentals indicate potential for heightened activity during the
remainder of 2013
Total deal volume fell approximately 40% during the
second quarter of 2013 relative to the first quarter of 2013
and the second quarter of 2012. While deal value fell by
32% year over year, deal value increased 66% from the
prior quarter. These trends signal an increase in average
deal value and heightened competition for relatively scarce
assets in the industry. Unless otherwise noted, figures used
for comparative purposes exclude mega deals with values
in excess of $20 billion.
12
Pharmaceuticals
Biotechnology
11
Medical devices
Diagnostics
Services 0
0
10
Pharmaceuticals
Pharmaceuticals
15
Biotechnology
Biotechnology
Medical devices
16
Diagnostics
Services 0
0
Medical devices
10
Diagnostics
10
Services
1
69
70
71
10
15
20
25
30
Note to Figures 1, 2, and 3: Numbers within bars indicate number of deals during the quarter.
PwC
Quarter in review
2013 Q2
2013 Q1
76
18
2012 Q4
22
2012 Q3
37
2012 Q2
0
10
20
30
40
70
80
2013 Q2
2013 Q1
35
42
2012 Q4
27
2012 Q3
37
2012 Q2
0
10
20
30
40
50
Number of deals
Source: Thomson Reuters
2013 Q2
71
12
1 1
72
2013 Q1
12
2012 Q4
2012 Q3
2012 Q2
2 4
11
26
10
20
30
40
70
80
Medical devices
Diagnostics
Services
2013 Q2
15
2013 Q1
17
2012 Q4
7
2012 Q3
10
5
10
2012 Q2
9
5
10
4
17
21
3 1
16
20
4
30
2
40
50
Number of deals
Pharmaceuticals
Biotechnology
Medical devices
Diagnostics
Services
PwC
Dec 2011 Mar 2012 Jun 2012 Sep 2012 Dec 2012 Mar 2013 Jun 2013
S&P 500Healthcare Sector Index (^HCX)
S&P 500Biotechnology Index
S&P 500Health Care Equipment & Supplies Index
S&P 500Pharmaceuticals Index
S&P 500 Index (^SPX)
1 http://www.pwc.com/us/en/press-releases/2013/q2-2013-ipo-watchpress-release.jhtml
Figure 9: Total deal value and deal volume by deal size and quarter
2012 Q2
2013 Q1
2013 Q2
Number of deals
$15M to $50M
160
125
111
$50M to $100M
271
645
222
$100M to $250M
1,452
1,347
884
$250M to $500M
2,173
3,202
1,092
$500M to $1,000M
3,525
1,721
1,260
> $1,000M
29,723
68,513
8,135
Total
37
37,305
35
75,553
22
11,704
PwC
Market wrap-up
Country spotlight
Brazil: High growth potential but challenges to deal-making
Projected to be the worlds fifth-largest economy within
the next decade, Brazil offers high growth potential for
companies that successfully penetrate the market. But
deal-making in this resource-rich country presents
significantchallenges.
Several factors set Brazil apart as an area for investment
and a source of growth. These include:
A focus on deals:
During the first quarter of 2013, Brazil showed a dramatic
drop in the number and value of healthcare deals
announced and closed (Table 1). Primary acquirers were
from Latin America or the Caribbean.2
Table 1. Brazil Healthcare Transactions
6,000
6
5,000
5
1,500
4
3
1,000
2
500
1
0
1
The World Bank, In Brazil, an emergent middle class takes off,
November 13, 2012, http://www.worldbank.org/en/news/
feature/2012/11/13/middle-class-in-Brazil-Latin-America-report.
PwC
Licenses
Importance of relationships
Operating in Brazil requires an understanding of local
business practices, but knowing the right people can be even
more important. One challenge of operating in Brazil is the
concentration of the distribution network, which lies in the
hands of a few national and regional groups. Local
distributors handle 65% to 75% of pharmaceutical
distribution, while manufacturers distribute only 25%
to35%.
Customer relationships are also critical, particularly if a
company is interested in introducing new products to the
Brazilian market. If relationships with customers are not
strong, a company may lose market share to regional
competing products. Thus, local management involvement
to achieve continuity in relationships may be critical to the
success of a transaction.
Similar to other emerging markets, relationships with
regulators in Brazil are also essential to future operations.
For both domestic and foreign players, understanding how
to navigate the regulatory and legal process on a timely
basis isimperative.
Generics in the market
During the last five to ten years, the presence of generic
pharmaceutical products has increased in Brazil. Generic
competition has grown in part because of greater
government incentives to attract local production and
research centers. As a result of this heightened competition,
trademark and patent protection are significant components
to protecting market share.
4
PwC, Doing Deals in Brazil, 2011, http://www.pwc.com.br/pt_BR/br/
publicacoes/assets/doing-deals-11-final-a.pdf.
5
PwC, Doing Deals in Brazil.
Anti-bribery
Brazil has drafted anti-bribery legislation, which is
awaiting Senate approval. Passing this legislation,
developed in consultation with OECD, the United States,
and other counterparts, may strengthen the economy and
increase foreign investment. When finalized, these
provisions could constitute dramatic changes in the
Brazilian legal system.
Key provisions in the new bill establish penalties such as
tightened sanctions and voluntary disclosures for
corporations, including employees of the company.
Furthermore, the bill will make allegations of bribery of
companies known publicly, creating potential reputational
risk tocorporations.
Foreign investors welcome this change in the Brazilian
market as it may help strengthen future deals.
Conclusion
Despite the risk, successfully executing transactions in
Brazil could yield significant benefits. Because Brazil is the
largest marketplace in Latin America and on track to
become the worlds fifth-largest economy in terms of GDP,
multinationals will likely consider the country in their
emerging market strategy. Brazil also offers political and
economic stability and strong legislation to protect
investors.
While the healthcare sector in Brazil is relatively complex,
it has undergone significant changes that make it a more
promising area for investment.
10
PwC
1
SEC & DOJ, A Resource Guide to the U.S. Foreign Corrupt Practices
Act, pg.28.
Figure 1. Percentage of enforcement actions in the pharmaceuticals and life sciences industry
4%
4%
17%
6%
12%
43%
13%
2007
2008
2009
2010
2011
2012
2013
1
Lanny Breuer, Assistant Attorney General, DOJ, Prepared Keynote
Address to the Tenth Annual Pharmaceutical Regulatory and Compliance
Congress and Best Practices Forum, November 12, 2009.
2
SEC Press Release, SEC Charges Medical Device Company Biomet
with Foreign Bribery, March 26, 2012.
3
PwC Analysis based on publicly available information.
4
PwC Analysis based on publicly available information.
12
PwC
2,000
1953
1,750
1,500
750
645
477
291
421
250
149
0
2007
18
23
2008
2009
2010
70
2011
142
2012
2013
1746
500
2
PwC Analysis based on publicly available information.
3
SEC, Administrative Proceeding Release No.34-64978.
4
SEC & DOJ, A Resource Guide to the U.S. Foreign Corrupt Practices
Act, pg.62.
5
DOJ, Ronald H. Weich. Letter to Congresswoman Adams, August
3,2011.
State-owned entities
14
PwC
Summing up
PwC
Acknowledgments
Authors
Dimitri Drone
Partner, Deals
Deals Services Pharmaceuticals
& Life Sciences Leader
973 236 4977
dimitri.b.drone@us.pwc.com
James Woods
Director, Deals
617 530 4133
james.woods@us.pwc.com
Strategy cornerFCPA brings risks to mergers
and acquisitions
Patricia Etzold
Partner, Forensics
646 471 3691
patricia.a.etzold@us.pwc.com
Laura Skrief
Director, Forensics
646 471 7489
laura.m.skrief@us.pwc.com
Country spotlightBrazil: High growth potential but
challenges to deal making
Harry G. Broadman
Leader, Emerging Markets Strategy Consulting,
and Chief Economist
202 312 0807
harry.g.broadman@us.pwc.com
Central
John Cunningham
Partner, Deals (Brazil)
55 11 3674 3280
john.peter.cunningham@br.pwc.com
Pam Yanakopulos
Partner, Deals
312 298 3798
pamela.yanakopulos@us.pwc.com
Manuel Iraola
Managing Director, Deals
305 375 6396
manuel.iraola@us.pwc.com
West
Manoj Mahenthiran
Partner, Deals
312 298 3162
manoj.c.mahenthiran@us.pwc.com
Mattias Gunnarsson
Partner, Deals
213 356 6978
mattias.x.gunnarsson@us.pwc.com
www.pwc.com/us/deals
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