EY research found that, for the first 11 months of 2022, biopharma M&A value dropped 42% compared with 2021.
“Alliances remain a significant focus for biopharma and companies’ M&A strategies. However, Amgen’s mid-December announcement that it will pay more than US$28 billion for Horizon Therapeutics may be a signal that the industry is ready to return to the big dealmaking table in 2023.”
Sector fundamentals are strong for active dealmaking, stressed the analysts.
The need for financing will drive smaller companies toward M&A, they predicted.
“Valuations for smaller companies have plunged and IPO and special purpose acquisition company (SPAC) activity has dramatically slowed, leaving small biotechs and MedTechs with fewer options for accessing public capital, and greater incentive to seek an exit via acquisition.”
There is also an abundance of potential acquisition targets with an ongoing “innovation renaissance” sweeping through the life sciences sector. “This wave of innovation includes a significant clinical pipeline of cell and gene therapies and the mRNA platform. In addition, breakthroughs in digital technologies and artificial intelligence (AI) offer companies the opportunity to deliver better personalized care.”
Looking ahead to 2023, the EY report identifies three major themes that the analyst believe will shape how the life sciences industry uses its M&A 'firepower' - defined as the capacity to conduct acquisitions based on the strength of the balance sheet:
- The industry’s leading players face significant upcoming growth gaps, particularly because of patent expiries looming in the biopharma sector, but it has the Firepower to close these gaps through dealmaking.
- Political, economic, and regulatory uncertainties are affecting the industry’s deal appetite but falling valuations and declining IPO and SPAC markets are creating a ‘buyer’s market’ which will prompt the big players to invest in deals.
- The most important targets are not only the novel drugs and devices that offer immediate value, but also the innovative technologies emerging outside the sector, including artificial intelligence (AI), big data, robotics, and others.
Record levels of dealmaking 'firepower' are available in the life sciences sector, with biopharma alone commanding more than US$1.4 trillion at the beginning of December 2022, according to EY.