2017 Dealmakers Intentions Study

Transcription

1 2017 Dealmakers Intentions Study Ninth Report in the Annual Dealmakers Intentions Series By Neel Patel, Sachin Purwar, Adam Mathias and Nelson Azoulay inventiv Health Consulting TM Shortening the distance from lab to life.

2 2017 Dealmakers Intentions Study Table of Contents Introduction... 3 Top Factors Influencing Dealmaking... 4 Expectations for Supply and Demand by Developmental Stage... 7 Supply and Demand by Therapeutic Area... 8 Hottest Areas for Licensing Deal Values Discount Rate Trends Why Deals Fail Strategic Implications Conclusions Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

3 In the last three years life sciences dealmaking has climbed to historic highs was an unprecedented year for the industry with deal value at approximately $425 billion (including financing, M&A and partnering/asset purchases) more than double the deals seen in In 2016, dealmaking activity was still high in historical terms, although at $275 billion, it was well below 2015 levels. This drop in 2016 was primarily attributed to M&A activity, which fell to $114 billion from $278 billion in Based on the first quarter of 2017, we are seeing dealmaking activity continue to level out closer to historical norms, although we project this year will still rank among the top three in value since our first Dealmakers Intentions report nine years ago. To gain more insight into what the rest of 2017 holds, inventiv Health Consulting surveyed dealmakers across the industry to assess their intentions for the next twelve months and put these findings into context for the year ahead. This year, we surveyed 107 members of the biopharma community who participate on both sides of deals and who have predominantly executive-level influence on decision-making. This report captures their expectations for deal activity, supply and demand for specific assets at different development stages, and various approaches to valuation. Respondents were divided among the executive (48%), business development (40%), corporate development (7%) and finance () functions. A majority (57% of respondents) reported they were in both in- and out-licensing roles, while 24% reported being in out-licensing roles only and 18% reported being in in-licensing roles only. Summary Results from Dealmakers Intentions dealmaking volume, while still robust, will return to levels closer to the historical norm. Emerging companies and true innovators have more dealmaking options thanks to the emergence of new buyers (e.g., midsized companies, regional deals, etc.) and expansion in financing options. The continued favorable financing environment will contribute to higher asset valuations and thus, an increased willingness to pay a premium over other buyers. A demand surplus (i.e., a seller s market) exists in CNS-neurology, hepatic, hematological and women s health indications while the hottest areas for licensing have remained immuno-oncology and genetics. A supply surplus most notably, preclinical assets exists in cardiovascular, oncology, CNS-psychiatry, inflammation and autoimmune diseases, making these buyer markets. Companies are being more selective with whom they engage, as suggested by progress to confidential disclosure agreement (CDA) rates that are expected to be much lower in 2017 than in years past (27% in 2017 vs. 65% in 2016). There is a supply surplus for preclinical assets but they remain attractive as buyers narrow their therapeutic areas of focus and fiercely compete to gain entry or establish leadership in hot therapeutic areas and/or gain technological advantage Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

4 Top Factors Influencing Dealmaking The trend away from large company dominance in total deal volume is continuing (Fig. 2). Financing to smallcap (<$1 billion) and private biopharma companies saw significant continued growth in 2015, driven largely by a record number of venture financings, and it remained steady through 2016 at over $20 billion. Financing in this range far above the $6-8 billion range that we saw from 2009 to 2012 appears to be the new normal. Meanwhile, the share of large-cap (>$50 billion) biopharma companies represented in M&A deals has continued to decline from a high of 8 in 2009 to 33% in Driving this trend is the emergence of new buyers and more financing options, from venture capital and other vehicles, that are available to innovators and giving them more runway to get to the next inflection point. Survey Respondents We surveyed 107 members of the biopharma communication in the first quarter of 2017 who participate on both sides of dealmaking and have a predominantly executive-level influence on decision-making (Fig. 1). Survey respondents were mostly senior company officers. The majority (66%) reported their title as senior vice president and above. Another 16% reported their level as vice president. The remaining survey respondents reported being at the director level (1) and manager level (4%). Figure 1 Responses were aggregated from 107 members of biopharma community who participate on both sides of the deal and with predominately executive-level influence on decision making. Finance 100% 90% Manager Director Corp Dev In-License 80% 70% VP Business Dev Out-License <$100M 60% 50% 40% 30% 20% Senior VP and Above Executive Both Inand Out- License $100-$500M $500M-$1B $1-$5B 10% 0% $5-$15B >$15B Corporate Level Function Role Size of Company Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

5 Major news headlines emphasize the long term impact within the industry of the global political environment and pricing pressures; however, when considering the impact on dealmaking those trends are less relevant than the headlines would suggest. Overall, the major factors affecting dealmaking are internal, with buyers abilities to finance acquisitions being the biggest one (Fig. 3). External factors like political and pricing pressures and potential changes to the Affordable Care Act are expected to have less impact than might have been anticipated. Pricing pressure, for instance, will likely be reflected in the valuation of the deal. But one major uncertainty in the mix is the new administration s stated intention to incentivize US companies to repatriate their overseas cash (at a proposed 10% tax rate instead of the current 35% tax rate). Corporate America had $1.3 trillion, or 74% of its total cash, stashed overseas in 2016, according to Moody s Investors Service. While the top five overseas cash holders are technology companies, large pharma accounts for a large portion of that cash. For example, five large pharma companies, including J&J, Amgen and Eli Lilly, hold a combined $250 billion in overseas funds. 2 If repatriation happens it could spark a new wave of life sciences dealmaking as the capital will likely need to be deployed to build a growth story for shareholders. Figure 2 Emerging companies have increasingly greater options in dealmaking through the emergence of new buyers (e.g. mid-sized companies, regional deals, etc.) and growth in financing. M&A, Partnering and Financing in Life Sciences Value of Deals (US$b) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 8 43% 40% $6 $6 $6 Financing M&A Partnering & Asset Purchases 44% $8 34% $ (Proj.) 4 $18 30% 33% $25 $23 25% $28 % of M&A/ partnering deal value with large-cap biopharma (>$50B) buyers Financing to small-cap (<$1B) & private biopharma Financing to small-cap (<$1B) and private biopharma companies saw significant continued growth in 2015, driven largely by a record number of venture financings, and has remained steady through 2016 at over $20B Share of large-cap (>$50B) biopharma company representation in partnering and M&A deals continued to decline in 2016; the number of large-cap deals has declined while the number of small-cap deals has increased Source: BCIQ DealMakers Database, Accessed: May Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

6 Figure 3 There is general consensus that buyers abilities to finance aquisitions are major factors that will affect dealmaking, while political factors and pricing pressure are less impactful. Top Factors Affecting Dealmaking in 2017 Cash Balance of Large Companies (Buyers) 5.6 Ability of Buyers to Access Debt 5.3 R&D Productivity of Large Companies (Buyers) 5.0 Number of FDA Product Approvals 4.9 Options for Small Companies to Pursue Regional Deals 4.8 Access to Capital for Sellers 4.6 Biopharma Stock Market Value 4.5 Options for Sellers to Self-Commercialize in Specific Markets 4.4 EU Political Landscape 3.7 US Political Landscape 3.7 Potential Changes to Affordable Care Act (ACA) 3.7 Pricing Potential / Pressure of Therapeutics 3.6 Internal Factors External Factors 0 Low High Source: InVentiv Health Consulting Dealmakers Intentions N=62 for Buyers and N=36 for Sellers. Respondents ranked the effect of each factor on a scale of 1-7. Figure 4 Sellers have a slightly more optimistic view than buyers that dealmaking will continue to increase in 2017, with both groups expecting about the same amount of licensing / partnership deals and more deals with provisional aquisitions and public equity. Expectations by Deal Type Buyers vs. Sellers Traditional Licensing/ Partnership Outright Acquisition Buyers Sellers Buyers Sellers 1 45% 43% 9% 53% 38% 17% 47% 36% 3 44% 24% Fewer Deals About the Same More Deals Aquisition With Earn-out Buyers Sellers 21% 29% 50% 18% 44% 38% Private Financing Buyers Sellers 16% 56% 28% 24% 47% 29% IPOs Buyers Sellers 38% 33% 29% 3 44% 24% Other Public Equity Buyers Sellers 19% 40% 41% 9% 50% 41% Source: InVentiv Health Consulting Dealmakers Intentions N=62 for Buyers and N=36 for Sellers Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

7 Expectations for 2017 Consistent with historical results, this year s survey shows sellers are slightly more optimistic than buyers that dealmaking will continue to be strong in 2017 (Fig. 4), with both groups expecting about the same amount of licensing and partnership deals as 2016 (including traditional licensing/partnership, outright acquisition, acquisition with earn-out, private financing, IPOs and other public equity, and more deals with provisional acquisitions and public equity). In 2016, sellers had similar expectations for outright acquisitions, but buyers and sellers were more optimistic for traditional licensing/partnerships and acquisition with earn-outs. Supply and demand by development stage Compared to 2016 we are seeing a greater mismatch between the assets buyers want to buy and those that sellers want to sell (Fig. 5). For 2017, buyers have a 200+% higher interest in acquiring phase III and marketed assets than sellers have in parting with them. By an equal measure, sellers have a 200+% higher interest in selling their preclinical assets than buyers have in acquiring them. A full 54% of sellers have assets available in preclinical but only 24% of buyers are interested. In contrast, 3 of buyers were interested in preclinical assets in The decline from last year suggests that buyers are becoming more risk averse and are waiting for later stage products with more data. However, pre-clinical assets are still generating higher overall interest relative to assets in phase I, II or III. Preclinical assets can be acquired much less expensively and are attractive as buyers narrow their therapeutic areas of focus and engage in stiff competition to break into hot therapeutic areas or gain technological advantage. In contrast, the supply and demand dynamic in the middle of the market (phase I and II) is far more balanced, continuing the trend we saw in Here,18% of buyers report being interested in acquiring phase II assets and 14% of sellers report being interested in selling them. Buyer and seller interest are also closely matched with regard to phase I assets (at 16% and 13%, respectively). Overall, preclinical continues to be a relative buyers market, and phase III and marketed products are relative sellers markets. Figure 5 The interests of buyers and sellers in phase III and marketed assests differ significantly. Buyers have a 200% higher interest in acquiring phase III and marketed assests than sellers are in parting with these late-stage assests. However, sellers have a 200% higher interest in selling their preclinical assests than buyers are inacquiring. 24% 54% Buyers Interest vs.sellers Asset Availability 16% 13% Phase I 18% 14% Phase II 18% 7% Phase III 23% 11% Marketed Preclinical Buyers Sellers Source: inventiv Helath Consulting Dealmarkers Intentions N=62 for Buyers and N=36 for Sellers Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

8 Figure 6 Buyers and Sellers share similar interests in what they consider to be key therapeutic areas with deal potential. Oncology, Autoimmune and CNS - Neurology are the top three (by average), but there is a lot more variability than in previous years. 1% 1% 1% 1% 7% 9% 3% 3% 3% 11% 1 10% 27% Therapeutic Areas of Interest for Buyers 3% 5% 3% 4% 29% Therapeutic Areas Available from Sellers 3% 3% 4% 6% 3% 5% 7% 5% 3% 3% 6% 1% 1% Sellers Market Demand Surplus Buyers Market Supply Surplus Autoimmune Dermatology Cardiovascular Endocrine/Metabolic CNS - Neurology (excluding Pain) Gastrointestinal CNS - Psychiatry Hematology Hepatic Infectious Disease (Antibiotic) Infection Disease (Antiviral) Inflammation Oncology Opthalmology Pain Renal Respiratory/Pulmonology Vaccines Women s Health Other Supply and demand by therapeutic area Comparing therapeutic areas of interest with sellers available assets, one can see there are significant areas of disparity in demand or supply of assets in the current dealmaking environment (Fig. 6). A sellers market exists at all phases in the areas of hepatic disease including non-alcoholic steatohepatitis (NASH), women s health and most of the CNS-neurology space. Additionally, a sellers market exists in pain, renal and vaccine therapeutic areas and in some phases of the oncology, autoimmune, inflammation and CNS-psychiatry spaces. The sellers market in these areas will likely result in significant increases in value for the more promising assets. On the other hand, the supply of assets most notably, preclinical assets overshadows buyer demand in several therapeutic areas including cardiovascular, oncology, CNS-psychiatry, inflammation and autoimmune diseases, making these buyer markets. Compared to last year, buyer enthusiasm appears to have tapered relative to supply with regard to infectious disease, oncology, autoimmune and CNSpsychiatry assets. However, with regard to oncology, the volume of development activity has kept this therapeutic area in a buyer s market mode overall for the second year in a row Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

9 Figure 7a Buyers demand for later stage assets overshadows supply across several therapeutic areas which will likely result in significant increase in asset value notably in CNS - Neurology. Hepatic diseases, Hematology and Women s Health. A Demand Index Identifies the Areas of the Highest Mismatch Between Supply and Demand Preclinical Phase I Phase II Phase III Marketed 6% 4% Sellers Market Demand Surplus Relative Demand 0% - -4% -6% CNS - Neurology (ex Pain) Hepatic Hematology Women s Health Buyers Market Supply Surplus Pain Renal Vaccines Dermatology Source: inventiv Helath Consulting Dealmarkers Intentions total respondents. Demand Index is calculated by subtracting the share of respondents with at least one asset to out-license from the share respondents likely or very likely to in-license for at least one therapeutic area for at least one stage of development. Below are the specific combinations of therapeutic areas and stages of development anticipated to have the highest supply and demand imbalances this year (Fig.7): Demand surplus (i.e., sellers market): CNS-Neurology (phase I-III, marketed) Hepatic (phase II) Hematology (phase I, III) Women s Health (phase II, marketed) Oncology (phase II and marketed) Endocrine/Metabolic (phase II) Supply surplus (i.e., buyer s market): Gastrointestinal (phase II) Oncology (preclinical, phase II) Autoimmune (preclinical) Inflammation (preclinical) CNS-Psychiatry (preclinical) Cardiovascular (preclinical) Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

10 Figure 7b Supply of assets, notably preclinical assets, overshadows buyer demand across several therapeutic areas such as Cardiovascular, CNS - Psychiatry, Inflammation and Autoimmune diseases. A Demand Index Identifies the Areas of the Highest Mismatch Between Supply and Demand Preclinical Phase I Phase II Phase III Marketed 6% 4% Sellers Market Demand Surplus Relative Demand 0% - -4% Buyers Market Supply Surplus -6% Endocrine/ Metabolic Opthalmology Infectious Disease (Antibiotic) Infectious Disease (Antiviral) Respiratory/ Pulmonology Gastrointestinal Oncology Autoimmune Inflammation CNS - Psychiatry Cardiovascular Source: inventiv Helath Consulting Dealmarkers Intentions total respondents. Demand Index is calculated by subtracting the share of respondents with at least one asset to out-license from the share respondents likely or very likely to in-license for at least one therapeutic area for at least one stage of development. Hottest Areas for Licensing Innovation in immuno-oncology and genetics remain hot spots for licensing in 2017 as they were in Specific areas of interest include CAR-T therapies, CRISPR-Cas9, cancer vaccines, biosimilars and anti-body drug conjugates (Fig 8). The other genome editing approaches category has also emerged this year as a hot area for licensing. Several factors are continuing to conspire to make these areas ripe for dealmaking. To start with, T-cell immunotherapy remains a hot area for funding and research. It is still not clear whether CAR-T therapies will be widely used in the future for a broader range of cancers. But the opportunities for a breakthrough are continuing to fuel high interest this year and will likely do so for the foreseeable future. In addition, there also continues to be extensive interest in genomics and cell therapies. CRISPR/Cas9 has the attention of hundreds of researchers worldwide, and interest in gene therapy has developed into a high interest area among buyers. Interest continues in cancer vaccines as an area for licensing, driven by developments over the past few years in immuno-oncology and several high-profile successes in treating patients with various conditions including metastatic squamous non-small cell lung cancer Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

11 The CNS space is also hot going into 2017, with deals that include Vtesses sale of its preclinical asset VTS-270 (for Niemann-Pick Disease Type C1) to Sucampo for $200 million upfront plus milestone payments; Neurovance s sale of its phase IIb compound centanafadine (for ADHD) to Otsuka for $100 million upfront plus up to $250 million in milestone payments; and Lysosomal Therapeutics sale of its phase Ib compound LTI-291 (for Parkinson s) to Allergan for $125 million upfront. Also in early 2017, there have been two deals of compounds for non-alcoholic steatohepatitis (NASH) with Allergan and J&J as buyers; in 2016 there were six NASH deals completed with two of them valued at over $1 billion. Most of the completed deals in NASH have been for assets in earlier stages of development. NASH is an attractive therapeutic area because there is a significant unmet need (no currently approved treatments) and a large potential patient population. Some analysts value the market at $20 billion or more by Figure 8 CAR-T and CRISPR/Cas9 emerged as the hottest areas for licensing in 2016 and this enthusiasm is reinforced for Hot Areas for Licensing in 2017 Areas that have emerged significantly over previous year(s) 1 Share of Respondents 10% 8% 6% 4% 0% CAR-T cell therapy CRISPR/Cas9 Antibody-drug conjugates Cancer vaccines Follow-on biologics Ultra-rare Other Genome Editing* Nanoparticles Personalized medicine Stem cells Epigenetics Ion channel inhibitors Organ/tissue engineering DNA vaccines Oral protein delivery RNAi Tyrosine kinase inhibitors *Other Genome Editing/Gene Therapy (Viral/Non-Viral) Source: InVentiv Health Consulting Dealmakers Intentions Includes answers from 107 respondents. Respondents could select multiple areas Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

12 Deal Values Dealmakers report that 49% of upfront values for completed transactions in 2016 were between $20 million and $100 million while total deal values ranged from $20 million to over $1 billion (Fig. 9). This tells us that most deals are being structured to mitigate risk upfront and to provide substantial upside based on success. Figure 9 Dealmakers report that upfront values are generally between $20M and $100M, while total deal values for completed transactions in 2016 can range from $20M to over $1B. Upfront Value for Deal Closed in 2016 Total Deal Value in 2016* Preclinical Phase I Phase II Phase III Marketed Preclinical Phase I Phase II Phase III Marketed 100% 75% 75% 10% 5% 15% 10% 25% 25% 33% 50% 100% 75% 60% 33% 29% 14% 9% 18% 9% 17% 17% 17% 50% 50% 25% 60% 25% 67% 50% 25% 10% 67% 57% 64% 17% 25% 25% 30% 33% 0% <$20M $20- $100M $100- $250M $250M- $1B N=41 N=40 0% >$1B <$20M $20- $100M $100- $250M $250M- $1B >$1B % Breakdown of Upfront Value Reported % Breakdown of Total Deal Value Reported 7% 10% 8% 49% 29% <$20M $20-$100M $100-$250M $250M-1B >1B 28% 15% 18% 25% 15% <$20M $20-$100M $100-$250M $250M-1B >1B Source: InVentiv Health Consulting Dealmakers Intentions N=62 for Buyers and N=36 for Sellers Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

13 Discount Rate Trends Looking at discount rates as a surrogate measure for future dealmaking, we are seeing the discount rate gap between in-licensers and out-licensers widen in 2017 (4% spread vs in 2016), potentially indicating an acceleration in dealmaking activity over time (Fig. 10). A similar trend occurred in 2013 where the discount rate gap was higher than usual at 8% and catalyzed the unprecedented dealmaking activity observed in The rationale behind the increase is that, with a higher spread, there is a greater value in the asset changing hands from the seller to the buyer, a portion of which can be potentially distributed to the seller in deal negotiations. The delayed impact of the spread is likely due to the length of time it takes to find assets and agree to terms. Similar growth in dealmaking activity can be anticipated in 2019 given the high discount rate gap between in-licensers and out-licensers this year. However, dealmaking activity is unlikely to reach the heights attained in 2015 as the spread is not as wide. The continued favorable financial environment is likely to contribute to higher asset valuations and thus an increased willingness to pay a premium over other buyers. So, in many respects, this is still a sellers market as there are multiple financing options available to buyers along with high buyer demand. Figure 10 The discount rates for those surveyed are largely clustered around company size. The continued favorable financing environment contributes to higher asset valuations, and thus, an increased willingness to pay a premium over other buyers. Distribution of Discount Rates Large Companies Buyers Sellers Mid-Sized/Emerging Companies 12 # of companies <8% 9% 10% 11% 1 13% 14% 15% 16% 17% 18% 19% >20% Median Source: InVentiv Health Consulting Dealmakers Intentions N=62 for Buyers and N=36 for Sellers Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

14 Why Deals Fail Respondents report that licensing is a process with pass/fail rates reminiscent of those seen in successful development of phase I molecules (Fig 11). For 2017 they expect an average deal conversation rate at 3.9%, which is close to the five-year average although lower than the previous three years, which averaged over 5%. Projected conversion rates by deal stage in 2017 specifically, progression to term sheet and completed transactions are expected to be similar to those seen in However, the progression to CDA rates are expected to be much lower than in years past (27% in 2017 vs. 65% in 2016), leading us to believe that companies are being more selective with whom they engage to begin the process. Figure 11 Respondents reported that licensing is a process with pass / fail rates reminiscent of those seen in clinical development. They report an average cumulative conversion rate that is close to the 5-year average. ~50 Opportunities/respondent considered Progress to CDA Progress to Term Sheet Completed Transaction Stage Conversion Rate 27% (65% in 2016) Stage Conversion Rate 38% (35% in 2016) Stage Conversion Rate 37% (2 in 2016) 2017 Cumulative Conversion Rate 3.9% Historical Cumulative Conversion Rate % 1.3% 3.5% 5.1% 5.1% 5.0% 3.9% Source: InVentiv Health Consulting Dealmakers Intentions Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

15 Buyers and sellers report similar pitfalls in the dealmaking environment as in past years. More than 75% of respondents zeroed in on two main reasons for deal failure: differing opinions about an asset s commercial potential and unreasonable term expectations (Fig. 12). This and similar findings from previous years suggest that deal failure is largely due to factors under dealmakers control. At the same time, it is worth noting that very few buyers or sellers cited a lack of trust as a reason for deal failures, a pitfall that has decreased significantly since we began this survey nine years ago. For the most part, issues that arise during due diligence at various stages are a main driver of deal failures. Other differences of opinion often arise over risk assessments and commercial viability. Figure 12 Buyers and sellers report similar pitfalls in the dealmaking environment, citing differing opinions of an asset s commercial potential and unreasonable term expectations as the two largest factors. Overall Reasons For Deal Failures Buyers Sellers Differing Opinions of Commercial Potential Unreasonable Term Expectations 23% 39% 38% 46% Differing opinions of commercial potential and unreasonable term expectations were seen as primary causes for deal failures among ~75% of respondents. Shift in Corporate Policies 13% Legal Issues 6% Lack of Trust 3% New Clinical Data Source: InVentiv Health Consulting Dealmakers Intentions N=62 for Buyers and N=36 for Sellers Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

16 To improve the in-licensing/acquisition process (Fig 13): 35% of buyers believe that additional resources to expand existing operations would most strongly improve the buying process. Another 21% of buyers desire more promising assets that fit specific strategic goals, with more effective asset screens a priority. Almost 20% of all respondents (buyers and sellers) desire improved process consistency, with better internal communications a priority. Almost 10% of buyers desire improved diligence, including a deeper scientific/technical understanding of the target asset. Figure 13 35% of buyers believe that additional resources to expand existing operations would most strongly improve the buying process, while another 21% of respondents desire more promising assets that fit specific strategic goals. Most Important Opportunity for Improving In-Licensing Progress (Buyers) Improved Partnership Management All Respondents More effective communication of my company s value as a partner 46% Better rapport building between the target partner and my More effective negotiation 1 31% Access to Capital Improved Diligence Deeper scientific/technical understanding of target More accurate forecasting Improved pricing and market access review Improved customer market research All Respondents % 1 7% Other, 1 19% 4% 21% 35% Improved Bandwidth Do more of the same things my company does now Sellers are no the only ones who are resource-constrained Improved Process Consistency All Respondents Better Assets to Review All Respondents Better internal communications Development of SOPs 19% 47% More effective asset screens Asset targeting to more preferable classes 2 49% More effective adherence to SOPs 8% Increased deal flow 20% Source: inventiv Helath Consulting Dealmarkers Intentions N=62 for Buyers and N=36 for Sellers Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

17 Strategic Implications One of the key takeaways from the 2017 Dealmakers Intentions Survey is that while dealmaking volume in 2017 may continue to regress to the five-year average, decision makers are continuing to think creatively about new partnership opportunities. Specifically: The M&A momentum of 2015 has slowed as buyers search for more tailored and precise portfolio additions. Increased expectations for licensing/partnering and M&A activity with earn-outs indicate a tempered appetite for risk. Meanwhile, buyers and sellers must be aware of imbalances in supply and demand as a way of identifying opportunities and understanding value. Specifically: A seller s market exists for all phases of hepatic disease, women s health and most CNS-neurology assets. The volume of development activity in oncology has kept this therapeutic area in a buyer s market for the second year in a row. Innovation continues to drive demand in immuno-oncology and genetics. Hot areas and technologies of interest include CAR-T therapy, CRISPR-Cas9, cancer vaccines, biosimilars and antibody drug conjugates. Dealmaking failures are largely due to factors under dealmakers control. Trust issues have become less important while more common pitfalls include: Differing opinions about either an asset s commercial potential and unreasonable term expectations; and Issues that arise during due diligence at various dealmaking stages Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

18 Conclusion Dealmaking in life sciences is once again expected to be robust in 2017 but is unlikely to reach the peak achieved in 2015 although a potential government move to repatriate the billions in funds now held by big pharma overseas could radically alter this dynamic. In many respects, this is still a seller s market as buyers narrow their therapeutic areas of focus and fiercely compete for entry and leadership in hot therapeutic areas or to gain technological advantage. True innovators can expect to benefit from the emergence of new buyers and more financing options from the capital markets, permitting them to retain rights longer. This market dynamic allows innovators to hold on to assets through to commercialization in some disease areas. However, success with this strategy requires a clear understanding of the long-term potential of their asset in a rapidly evolving buyer s market and payer landscape. References: 1. BCIQ DealMakers Database, Accessed: May O Connell C. How Donald Trump s corporate tax holiday could spur a pharma M&A boom. Reuters. December 6, Available at: 3. Preston J. Report: NASH market to increase 40-fold by MedCity News. May 16, Available at: Authors Neel Patel Managing Director neel.patel@inventivhealth.com Sachin Purwar Senior Engagement Manager sachin.purwar@inventivhealth.com Nelson Azoulay Senior Engagement Manager nelson.azoulay@inventivhealth.com Adam Mathias Senior Consultant adam.mathias@inventivhealth.com The Dealmakers Intentions Study is the only forward-looking measure of dealmaking in the pharmaceutical and biotech industry. Dealmakers Intentions is a work produced by the Commercial Strategy and Planning Practice at inventiv Health Consulting Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting

19 About inventiv Health inventiv Health is a global professional services organization designed to help the biopharmaceutical industry accelerate the delivery of much-needed therapies to market. Our combined Clinical Research Organization (CRO) and Contract Commercial Organization (CCO) offer a differentiated suite of services, processes and integrated solutions that improve client performance. With more than 15,000 employees and the ability to support clients in more than 90 countries, our global scale and deep therapeutic expertise enable inventiv to help clients successfully navigate an increasingly complex environment. For more information, visit inventivhealth.com. About inventiv Health Consulting inventiv Health Consulting is an industry-leading consulting firm specializing in the biopharmaceutical industry and part of inventiv Health, a global professional services organization designed to help the biopharmaceutical industry accelerate the delivery of much-needed therapies to market. We provide services across a comprehensive range of key areas, including commercial strategy and planning, medical affairs, risk and program management and pricing and market access. Recognized by Forbes magazine as one of America s Best Management Consulting Firms for two years running, our industry focus and depth of functional expertise, combined with strong scientific and market knowledge, uniquely position us to tackle highly complex business and market challenges to develop actionable strategies for our clients. For more information, please visit inventivhealth.com/consulting inventiv Health. All Rights Reserved Dealmakers Intentions Study inventiv Health Consulting inventivhealth.com/consulting