There’s unprecedented firepower on the table
It’s an interesting year for M&A in the life sciences. The industry is emerging from a period of unprecedented turbulence, and there is currently approximately $1.4 trillion in firepower on the table – the highest amount of available capital for acquisitions recorded in the last decade. Analysts predict large-scale transformative dealmaking, and as life sciences organizations look to grow and future-proof their operations, strategic M&A will play an increasingly important role.
Here’s a quick guide to navigating life sciences M&A in 2023.
M&A activity is on the rise in 2023
2022 saw a fairly muted year for M&A activity in the pharmaceutical industry. According to Bain & Company, strategic healthcare deals declined by over 30%, with average deal size dropping 15% despite some mega-deals in the fourth quarter. But so far, 2023 has delivered some key indicators that M&A is set to rebound. M&A activity increased by 43% in value terms in Q1 compared to the previous quarter’s total, a rise of 196% compared to Q1 2022.
As the industry acclimatizes to macroeconomic uncertainties, analysts predict a number of factors will drive growth in this arena. The first is the surplus of cash on hand. The top 25 US firms had approximately $30 billion in cash on hand at the beginning of this year – enough to see some significant movement as the year progresses. To add to this, there are approximately $100 billion in patents set to expire by 2030, meaning pharma M&A activity is expected to rebound significantly in the immediate future as companies move to plug the gaps in their portfolios brought on by approaching patent cliffs. The looming patent cliff is estimated to put around $258 billion at risk as revenues are eroded by the introduction of lower-priced generics and biosimilars.
The biggest deals of 2023 (so far)
There’s already been some significant M&A activity in the sector this year.
In April, Merck acquired Prometheus Biosciences for $11 billion, adding an exciting experimental treatment for ulcerative colitis and Crohn’s disease to its portfolio.
In March, Pfizer bought Seagen for $43 billion in what analysts predict will be the biggest deal of the year. The Seattle-based biotech startup is set to broaden the pharmaceutical giant’s oncology capabilities significantly.
Lastly, AstraZeneca is set to acquire American clinical-stage biopharmaceutical company CinCor for $2 billion, looking to boost its cardiorenal pipeline.
Three steps to successful M&A dealmaking in 2023
In a guest column for Life Science Leader, Arda Ural lays out three strategies for successful M&A dealmaking in 2023.
- Attempt to de-risk deals as far as possible
50% of M&A deals targeted pre-Phase 3 assets in 2022, suggesting that companies are moving towards earlier-stage assets, as opposed to de-risking by targeting late-stage, well-validated clinical assets. Assets that are earlier in the R&D lifecycle come at a lower price, which offsets the higher risk of failure.
- Assess which deals have worked historically, and why
Ural suggests analyzing historical trends to isolate the highest areas of return. For example, bolt-on transactions have higher yields when the target company is in an adjacent therapeutic arena to the primary portfolio of the purchasing company. This suggests that depth and specialization are more lucrative than breadth.
- Ensure the right processes are in place to integrate new acquisitions
According to Ural, M&A doesn’t end when the funds have cleared. A robust change management infrastructure must be in place to ensure the success of the deal in the long term. This includes measures for facilitating cultural collaboration, change management, integration and new workflows.
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