Finance

Pharmaceutical Outsourcing Market – M&A and Capital Raisings: Part II

Finance

11:00, September 14 2017

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In the second feature of a two-part exclusive, Adam Dion, GlobalData, continues his exploration into the pharma outsourcing market

This report outlines the key Mergers & Acquisitions (M&A) and capital raisings in the outsourcing market in 2016 and 2017, including IPOs, private placements, and secondary offerings. The report summarizes the drivers of deal activity, as well as acquisition synergies, and corporate positioning.

Vendors Bank on Capital Markets to Raise Funds

IPOs Soar on Favorable Market Conditions

Declining R&D activity combined with increased development costs have negatively impacted biopharmaceutical companies which has resulted in increased demand for pharmaceutical outsourcing services. GlobalData believes these market conditions, along with access to capital, low interest rates, and strong pricing power have created an environment friendly to risk-taking, including the possibility of taking a company public. Equity offerings and venture financing are common sources of deal activity in the pharmaceutical outsourcing market. Vendors raise funds for the repurchasing of stock, corporate transactions, hiring key talent, and expanding operations and services. In 2016, capital raisings nearly doubled in value from $4.9 billion in 2016 to over $9.8 billion in 2016. GlobalData attributes the increase in deal value from capital raisings due to a number of IPOs in 2016, including Patheon and Medpace; as well as $1.2 billion in PIPE raised from AmerisourceBergen. GlobalData suspects that AmerisourceBergen will use the investment to fund future acquisitions.

Figure 2 displays M&A and capital raisings deal values in the pharmaceutical outsourcing market from 2010-2016

Figure 3 displays the breakdown by capital raisings in the pharmaceutical outsourcing market from 2010–2016. Capital raising values increased across all deal types – IPO, VC/PE, PIPE, and secondary offerings. IPO values where the highest they have hit in the seven years, growing by 145 percent to nearly $1.5 billion. VC/PE funding in the pharmaceutical outsourcing market was $1.8 billion in 2016, the highest since 2014 when values came it at $3.2 billion. Finally, PIPE and secondary offerings accounted for the majority of the funds raised in 2016 at around $3.3 billion, respectively.

Table 2 summarizes the key capital raisings from 2016

CompanyDeal TypeValueFinancial Advisors/Investors
Table 2: Outsourcing Market, Key Capital Raisings ($M), Table Summary, 2016
Laurus LabsIPO$198Citigroup, Jefferies, Karvy Computershare, Kotak Securities, and SBI Capital Markets
PRA Health SciencesSecondary$416Morgan Stanley
EPS HoldingsPIPE$405EPS Holdings
PatheonIPO$718JP Morgan, Morgan Stanley, Jefferies, UBS, Credit Suisse, Evercore ISI, Wells Fargo Securities, Robert W. Baird, Piper Jaffray, Raymond James, William Blair & Company, KeyBanc Capital Markets, and Leerink Partners
MedpaceIPO$185Credit Suisse Securities, Jefferies LLC, Robert W. Baird, UBS Securities, Wells Fargo Securities, and William Blair & Company
CatalentSecondary$249Goldman Sachs
Partners Group/PCI Pharma ServicesPrivate Equity$1,000Alvarez & Marshal, KPMG, and White and Chase
PRA Health ServicesSecondary$234Wells Fargo Securities
AmerisourceBergenPIPE$1,170

AmerisourceBergen

 

Source: GlobalData, Pharma Intelligence Center, Deal Analytics [Accessed July 28, 2017]. Note: Includes all deal values wherever disclosed. Excludes debt offerings

Future Outlook

Pillars of Sustainable Growth

The pharmaceutical outsourcing market stands to benefit from several factors impacting biopharmaceutical companies as they continue to face many challenges around weakening product pipelines, increased cost structures, and more complex disease targets that have been the key motivation for pharma companies to outsource their R&D activities to contracted partners across all stages of the drug development continuum. In addition, clinical activity has trended towards biologics from small molecules over the past few years, a trend that should prove beneficial to outsourcing vendors with expertise and experience in discovery pharmacology.

GlobalData remains bullish on the outsourcing market, with opportunities for the public vendors to augment revenue growth with profitability improvements and new capital deployments. However, as outsourcing penetration moves closer to peak levels and profitability targets are reached, we believe that CROs might need to look elsewhere to maintain the current growth trajectory. Acquisitions could help the top players support the current pace of growth, while in some instances offering additional service capabilities to increase share in new markets.

 

Adam Dion

Senior Industry Analyst

GlobalData

 

About the Author

Adam Dion is Senior Industry Analyst at GlobalData. Mr. Dion is the author of GlobalData’s PharmaLeaders Benchmark reports, which rank the competitive positions of the top companies in the pharmaceutical, biotech, and CRO/CMO and generic drug manufacturing sectors. Adam is the lead author of the Pharmaceutical Benchmark Report and the Innovative Mid-Cap Biotech Benchmark Report. He also provides coverage of trends in the healthcare IT space, including ‘Big Data’ and cloud computing.

Prior to joining GlobalData, Mr. Dion was an Analyst with Technology Business Research, a leading market research and consulting firm. In this role, he was responsible for coverage of blue-chip hardware, software, and BPO companies, such as Dell, Apple, SAP, Acer, Wipro, and Tata Consultancy, analyzing these companies’ go-to-market and vertical integration strategies, financial forecasting and competitive benchmarking. Adam has also been involved in a number of primary market studies in the consumer space, analyzing the market penetration of tablets, Netbooks, E-readers and mobile devices. His analytical commentary has been quoted by leading sources, such as The Wall Street Journal, Bloomberg, Forbes, Financial Times, The Guardian, PharmaLive, Drug Discovery News, ComputerWorld and eWeek. Adam received his BS in Neuroscience from Merrimack College, and MSc in Marketing from the University of New Haven. For commentary, Adam can be reached by email at: adion@globaldata.com

 

To read Part I of this report, click here

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