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2023 was a reasonably strong year for the pharmaceutical and life sciences sector with both deal value and volume of M&A close to pre-pandemic levels. In 2024, we expect similar levels of activity, in the $225 billion to $275 billion range across all subsectors. Executives will continue to deploy cash balances and seek out areas of innovation and clinical differentiation to help address remaining growth challenges in the latter half of the decade.
Despite some stabilization in the macroeconomic environment and the potential for a soft landing in sight, continued geopolitical and regulatory uncertainty seems a given in 2024. Against this backdrop — and coupled with the reality of higher interest rates — we expect dealmakers to increasingly focus on margin accretion in M&A, rather than relying prominently on growth-driven dealmaking. As regulators' perspectives on key deal factors become better understood, there may be a return of larger deals, along with continued interest in the $5 billion to $15 billion deals to fill targeted strategic gaps.
Differentiated science and clinical advances continue to come in waves and we expect to see dealmaking in areas with meaningful incremental innovation in 2024. Pharma and biotech dealmaking will continue to focus on precision medicine in areas such as oncology and immunology, but we also expect to see a heightened focus on weight loss and cardiovascular, a therapeutic area that went through a renaissance in 2023.
As we saw in 2023, competition for innovation remains increasingly fierce on the back of resetting biotech valuations and a focused approach to deliver value on M&A remains an imperative. IPO markets are critical for biopharma and we expect the window to gradually reopen in 2024, likely skewing toward companies with strong clinical data. Looking beyond traditional M&A, the sector will also seek out increasingly creative structures that allow for greater R&D funding while still maintaining control over the development of critical compounds, leaving the door open for an increased role for private equity and structured solutions such as private credit. Along with asset swaps, profit-sharing arrangements, innovative joint ventures (JVs) or collaborations and divestitures, creativity will be essential to executing on strategic priorities in 2024, including delivering top quartile returns to shareholders while limiting capital exposure.
In medtech, to address investor concerns about the potential impact of GLP-1 medications along with the anticipation of sustained, higher interest rates, companies are increasingly focused on managing cost structures to unlock capital to invest in growth opportunities and innovation. While M&A activity in the subsector remained muted in 2023, we expect deals will return as a catalyst for growth in 2024. In addition to seeking out innovative products, medtech companies will continue to look to M&A to drive business model reinvention. Acquirers will seek out new capabilities related to robotics, AI and data to enable strategies centered on new sites of care and increased collaboration in healthcare to drive better patient outcomes. To overcome high valuation expectations from sellers and a higher cost of capital, acquirers will need to maintain a sharp focus on value creation, linking deal theses to integration planning and investing in integration capabilities to drive sustained outcomes.
Private equity remains interested in contract development and manufacturing organizations (CDMOs) and contract research organizations (CROs) with differentiated capabilities, particularly in rapidly evolving areas like gene therapy. There is also potential for cross-sector deals as buyers outside pharma and biotech look for ways to leverage their manufacturing and other core competencies to gain exposure to high-growth areas in the sector. As in prior years, private equity acquisitions of underperforming public companies in market areas that benefit from secular growth trends will continue, particularly with strongly functioning investment grade credit markets and abundant private capital.
“We expect 2024 to be an active year for M&A where creativity will be imperative. Medium-term growth challenges remain for much of the sector and clinically differentiated science will continue to draw the attention of dealmakers.”
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