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Tune in as Glenn Hunzinger, PwC’s Health Industries Leader, connects with Nick Donkar, PwC’s U.S. Health Services Deals Leader, and Roel Van den Akker, PwC’s Pharma and Life Sciences Deals Leader, to discuss the 2025 midyear deals outlook across health services and pharma and life sciences. They explore how macroeconomic trends, regulatory pressures, and evolving investment strategies are shaping M&A activity and where new opportunities may emerge as companies look ahead to the second half of the year.
Discussion highlights:
- Health services deal volume remains resilient, with renewed investor interest in behavioral health, physician groups, and home-based care models
- Private equity firms are focused on outpatient growth platforms and niche services like revenue cycle management to navigate cost and regulatory headwinds
- Pharma and life sciences dealmaking is centered on targeted, asset driven M&A in the $1 to $5 billion range, rather than full scale platform acquisitions
- Regulatory uncertainty from FDA resource constraints to evolving policies on pricing and probability of technical and regulatory success (PTRS), is complicating deal modeling and slowing transaction timelines
- U.S. biopharma companies are increasingly sourcing early stage innovation from China, introducing new strategic opportunities along with cross border compliance and data challenges
Topics: pharmaceuticals, life sciences, health services, M&A, private equity, innovation, regulation, policy, FDA, CMS, reimbursement, market access, PTRS, deal modeling, compliance, due diligence, investment strategy, global strategy, operational planning, scenario planning, China, cross-border transactions, data integrity, clinical development, behavioral health, physician groups, home-based care, outpatient services, revenue cycle management, MedTech, strategic reviews, investor focus, capital deployment
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Episode transcript
Find episode transcript below.
00:00:00:00 Welcome back to Next in Health. I'm Glenn Hunzinger, PwC’s Health Industries Leader in the US. Today, we'll be taking a look at what's happening in health services and pharma life science and the related deals markets. We are at mid-year. What's driving the activity?
00:00:16:07 What do we think could play out for the second half of 2025? Joined by me are two esteemed PwC colleagues, Nick Donkar, who leads our US Health Services Deals team and Roel Van Den Akker, who leads our Pharma and Life Science team.
ROEL VAN DEN AKKER:
00:00:31:23 Great to be here, Glenn.
NICK DONKAR:
00:00:32:20 Thanks, Glenn.
GLENN HUNZINGER:
00:00:34:11 Nick, let's start with health services. Deals volume is a little softer compared to last year, but we've seen a lot of activity, especially in spots like behavioral health and physician groups. What's keeping things moving and what do you think?
NICK DONKAR:
00:00:46:01 Yeah. Glenn. Great question. I would tell you, you're right to pick on the fact that the deal volume is a little softer but resilient, I would say. And I think the areas that you highlighted specifically behavioral health is rebounding. We've seen a spike in autism deals, and we continue to see strong interest in physician groups of varying subspecialties.
00:01:04:20 While at the same time an increase in home health and other sort of home-based care related assets. Additionally, I think it's important to note, Glenn, that private equity firms are deploying capital very selectively, targeting growth stories and consolidation opportunities in outpatient care. So that's what's keeping the space active right now.
GLENN HUNZINGER:
00:01:23:22 No, that makes sense. I mean, there's plenty of drive capital out there. People want to get deals done. And so there's no doubt we continue to see a lot of activity behind the scenes. Helpful to get that guidance. Roel, over to you. On the PLS side, what are you seeing? And obviously there's a lot of activity in that $5 billion range.
00:01:41:08 We've seen it sort of plus or minus 1 billion to 5 billion and sort of 5 to 10 and so on. But talk a little bit about what we're seeing and what do you expect as we move forward?
ROEL VAN DEN AKKER:
00:01:49:19 Yeah. Glenn, thank you. And I think that's right. We've seen a fairly good opening of the year in pharma and life sciences. I think steady but cautious. It's kind of how we've turned this in our mid-year outlook. We see companies really leaning into the 1 to 5 billion range. As you alluded to it, the name of the game is in pharma
00:02:06:18 M&A is really product and asset-centric M&A rather than true platform M&A. That's how I would sort of characterize this. Companies are really looking at where innovation is sort of crystallizing and are being really targeted and selective in where they put their M&A dollars at work and are really sort of focused with strategic precision on kind of products or assets primarily,
00:02:29:40 rather than a large platform, because I think that's sort of translating in a fairly healthy clip of activity in the 1 to $5 billion range, as you alluded to. Clearly, some of the regulatory and geopolitical uncertainty is sort of driving that calculus in that agenda. It's not necessarily a new track.
00:02:46:04 We've talked about it for a number of years in the podcast that we've done together. And I think against the backdrop of sort of the macro situation that we're facing, that's really the name of the game and down on. Precision M&A focused on assets and product much more than platforms.
GLENN HUNZINGER:
00:03:02:10 And Roel, can you dig a little deeper on the regulatory? Obviously, got MFM and what's going on with the FDA and some of the funding or defunding and their ability to get things approved? And obviously, you've been on the forefront of the innovation in China, both as far as identifying and speaking on and in helping a lot of our clients navigate that landscape.
00:03:22:10 But maybe just talked a little bit about that piece and how that's dovetailing a little bit into the activity itself.
ROEL VAN DEN AKKER:
00:03:28:08 Yeah. And I think you're spot on, Glenn. So let's just think it maybe in three buckets and let me just try to answer your question through the lens of sort of a classic biopharma deal model. Right. So biggest determinant of value in M&A continues to be the revenue curve. Right.
00:03:42:30 So if we think about projecting a revenue curve, the ability to get pricing is sort of under pressure with some of the regulatory reforms that are out there, right. Whether it's MFN changes at the FDA. Those and the cuts to the FDA, however, that will shake out clearly is sort of making the outlook a little murkier, right?
00:04:00:06 If we think about PTRS, right, or the probability of technical and regulatory success, a very critical kind of variable in the deal model, estimating that has become more challenging with sort of the outlook and changes that the agencies and some of the reform that's being proposed by lawmakers and the new administration at the regulatory agencies.
00:04:20:04 Right. So clearly, the landscape on PTRS is evolving. It's becoming harder to estimate. And obviously, that's having a little bit of impact on the M&A calculus in the sector. And then lastly, I would say and I think this is probably somewhat underreported, but biotech and big pharma continues to be a long-duration industry. Right.
00:04:40:06 So that means we're investing for long cycles and as a result, sort of discount rates and WACC are very critical variable in kind of determining NPV and getting deals done. If we look at where sort of the ten year has been moving, the ten-year yield that is over the first 5 to 6 months, it's sort of been fairly high.
00:05:00:50 And I think you see that playing into the calculus of M&A as well. Right. So if you add all of that together, you come back to where I started. The response to your first question is people are steady in terms of execution. There's great innovation, but also cautious against the backdrop of regulatory changes, PTRS evolutions and the impact from the agencies and then kind of where the interest rates are (Unintel Phrase ___05:22)
GLENN HUNZINGER:
00:05:23:11 Thanks Roel. There's no lack of dynamics in the broader landscape for companies to navigate through. I know we continue to see our clients build the muscle to be able to just deal with these ever-changing landscapes. Not only is it difficult to invest in risky things that have binary outcomes, but then obviously you've got a shifting landscape around reimbursement or otherwise and modeling that becomes very challenging.
00:05:49:03 So helpful guidance there. Nick, as we think about health services, certainly there's no lack of discussion on sort of the DC aspect in the regulatory landscape. Maybe just talk a little bit about that. And how are companies thinking about that from an M&A?
NICK DONKAR:
00:06:03:21 Yeah. Glenn, thanks. And I want to come back to the word calculus that Roel has used several times here. I'm going to dumb it down a little bit from a health services side, because the FTC inkling you're 100% right. The increased FTC scrutiny on all things consolidation, vertical integration is having a tremendous impact on deal timelines, driving more complex filings.
00:06:25:11 And this especially should be focused on acute and managed care. But it really goes deeper than that, Glenn. It's the FTC from a federal perspective, but also a variety of states continue to chip away, whether it be Arkansas, California, New York, others that continue to sort of pull back and want to understand, rightfully so, is provision of care going to be impacted, are prices going to go up?
00:06:50:12 Are people covered? All of that stuff is incredibly important, but it makes for a very complex dynamic around deal making. And it also draws out timelines, as we talked about, but also the cost to do those deals becomes incredibly more difficult to do so in a timely and a cost-efficient manner.
00:07:09:09 So I think that's not going away. And then, as we've all talked about, more holistically, are we well, in our thought leadership pieces, highlight the general overall regulatory environment for funding for reimbursement. That is a whole another podcast that we rightfully should be talking about, because that changes on a daily basis in Washington.
00:07:28:00 So at the risk of going down that slippery slope, just know that it's more costly, it's slower, and it's impacting the way our clients think about getting and doing deals. Investors, as a result of this, they're shifting their focus toward lower-risk sectors like outpatient services, diagnostic and behavioral health just to navigate some of these hurdles and to try to get through it more effectively in a shorter period of time, given their strategic imperatives within the organizations.
GLENN HUNZINGER:
00:07:52:01 And maybe Nick, just double down on that. Where are we seeing as far as hotspots, investment themes, focus areas, what are the topics that are creating the most dialog?
NICK DONKAR:
00:08:02:16 Yeah. Great question, Glenn. I think we hit on a couple of them at the onset of the call, but I want to double down on them now, which is sort of behavioral health platforms are gaining traction because of the persistent supply- demand gaps, with investors drawn to these scalable models. Said slightly differently, there's still a lot of fragmentation there, and there's a pent-up demand for these services across the US. You do have the major players we don't need to name, and we know who they are.
00:08:26:05 But in the markets, we provide care at home, we need to provide care off hospital-based type sites, those types of things. If you have the right model to do so, and you are providing that care in the markets that need it, there's still a lot of activity that can happen in behavioral health from a platform perspective. Similarly, revenue cycle management interest is a unique niche, right.
00:08:49:07 Again, similar to behavioral health, you've got the revenue cycle players, public companies, former public companies. But the niche nature with which some of these players operate, providing certain just basic services to physician practice groups to help drive efficiency. And even in the value-based care adoption model, which is continuing to explode, this revenue cycle play continues to have a lot of activity.
00:09:13:16 And I think that whether our thought leadership or others prognosticate that we feel like both of these areas, at a minimum, we'll see increased activity in future periods.
GLENN HUNZINGER:
00:09:22:10 Yeah, it's interesting. A lot to be excited about when we think about the broader health and health community, and it's great to see capital pouring in that direction. Roel, the conversation we touched on a little bit with the innovation and the innovation we're seeing out of China. And more broadly, certainly there's a lot to be excited about when we think about hearing certain disease states and otherwise.
00:09:45:12 And obviously companies are looking at M&A with some of the biotech that's out there. Can you talk a little bit about what we're seeing? And maybe the first time in a while it's a lot — not necessarily all in the US. So maybe some of that landscape.
ROEL VAN DEN AKKER:
00:10:01:07 Yeah, Glenn, you're spot on. And I think a lot of M&A observers in the pharma space have talked extensively over the last number of months, sort of about one statistic in specific. And it's effectively that one out of three, which as we're sitting here today, maybe up to one out of two-and-a-half out of every in-licensing transaction that US multinational companies do in the biopharma space is coming out of China.
00:10:24:18 And that in and of itself is probably not that staggering a statistic. But if you go back five years, that was nearly zero. So the rate of change is significant. And China has really caught up as an innovation powerhouse in biotech in specific. Right. So it's clearly a priority, over there as an industry we're starting to see capital formation be pretty strong out there.
00:10:49:04 We're starting to see biotech hubs that sort of look and feel like South San Francisco, Cambridge and San Diego. And we're starting to see innovation and in-licensing into the US coming out of China at a rate that we've never seen before. So that's exceptionally exciting, because I think that means that companies are seeing sort of clinical evidence in early-phase studies that is very promising for patients and bridging unmet medical needs.
00:11:13:12 But it also drives a fair amount of strategic questions for companies in terms of how are they thinking about sourcing of their external innovation, how they're thinking about in-licensing from China as a general sort of M&A avenue. And it also creates a raft of challenges around doing these types of transactions early in the clinical development pathway, in a world that's ever more geopolitically fractured.
00:11:36:04 Right. And I think, Glenn, we've done another podcast on this before to talk about the challenges. We think that trend is here to stay. There are now some compounds that have been in-licensed into the US MNCs and that have since gone through phase two and phase threes that are showing very promising clinical progress also in Western populations, which generally is having people in the industry quite excited.
00:12:00:02 But from a deal-making perspective, it creates challenges around the data front, they create challenges around, (Unintel Phrase ___12:07) isn't creating the right transaction structure to be in compliance with potential buyer security implications, and it also creates challenges with wanting the clinical program in the US with the right guardrails.
00:12:20:10 So certainly an exciting time. Lots of very exciting science coming out of China, but it also creates a lot of questions and strategic questions for biopharma C-suite executives as to how they want to manage that.
GLENN HUNZINGER:
00:12:31:23 It'll be interesting. It's great to see that the progress on the science, given the three years ago, we just really had a huge amount of capital that poured into biotech, which we're seeing the output of that right now. And I think that creates a lot of excitement. So what do you think's going to happen the back half of this year? How are you feeling about that? And as we head into the new calendar year, what's your crystal ball there?
ROEL VAN DEN AKKER:
00:12:55:13 Yeah, Glenn, I'll maybe go first. On the biopharma side, I continue to be fascinated by the pace and the level of innovation that our sector continues to have, whether it's PDL, VEGF therapies and scaffolding therapies and cancer and oncology and their impact to patients, whether it's in weight loss or large cardiovascular categories, whether it's the excitement around potential gene therapies for Parkinson's, this sector is fascinating.
00:13:23:01 And the rate of innovation that we're seeing come out of the clinical conferences that we're seeing happen in biotech, we're seeing up in in academia — it continues to sort of amaze me. And that's something we're all deeply passionate about in this industry, is meeting patients’ unmet medical need. So that, in my mind, continues at a clip that we've hardly seen before.
00:13:43:12 And I think we have still pretty good kind of corporate earnings, corporate balance sheets, earnings power to kind of lean into M&A. And we continue to see the trend of a lot of companies having to address pipeline gaps. So overall that's going to continue to bode well for biopharma M&A into the rest of ‘25 and into 26,
00:14:02:20 albeit through the lens that, I kind of sketched before, people are going to be cautious around leaning into sort of more platform M&A and continue to resort to kind of asset-centric or product-specific M&A to string together an innovation agenda. I think on the medtech side, Glenn, we haven't really talked much about that.
00:14:20:09 There's a lot of very interesting things happening there. We've talked for a long time on your podcast, Nick and I as well, about portfolio optionality on locking portfolio most, I think medtech has been leading that as a sector. Are we really the rightful owners for certain assets? And we continue to see that trend play out in the first half of the year, with some companies making those strategic announcements.
00:14:43:07 In a world where capital market performance continues to be uneven, both across sectors and within sectors, we do think that trend is here to stay. And I think we've seen that play out of medtech, and I think that's going to continue in the rest of the year as well. So that's how I'm thinking about it. Glenn, at a high level for pharma and medtech.
GLENN HUNZINGER:
00:15:00:19 Yeah, I think you're right on the shareholder view in the capital markets. I mean, there's clearly continued separation of the winners and others. And now more than ever, placing the right bets and making the right capital deployment, this starts to continue to set that trajectory in the right direction. Nick, and we talk about so the services side of health is almost 4 trillion
00:15:22:23 of the total $5 trillion in the US spent is really around the services side of health. And we all know we want a world which is connected up, efficient, predictive, proactive, preventative and sort of at the point of care at our fingertips. And clearly, we've got a lot of capital pouring into starting to bend that curve, but certainly not easy from an all-out acquisition.
00:15:48:07 I think people are looking at structured ways to do it, but yeah, talk a little bit about the excitement that's in that investment area. And then, how are people sort of figuring out ways to invest when it's not just pure right-out acquisition?
NICK DONKAR:
00:16:02:20 Yeah. Glenn, you're spot on with the math there. And I think what keeps me excited about this sector and what, regardless of where we sit, is the fact that the resilient nature with which transactions have continued to occur across the health services continuum, I think that's the big thing, given the basket of assets that we have, the ebb and flow of those baskets in any one particular cycle or attractiveness continues to happen again.
00:16:27:13 The word resiliency keeps me up, keeps me pumping from a bullish nature. When I think about the overall deal sector here, I think all the tailwinds exist. Glenn, you hit on it earlier around private equity dollars there, but the strategic nature of some of their investments and what they're trying to do is the deal structures have changed a little bit, right.
00:16:46:22 So we're seeing a variety of deal structures, whether it be minority stakes, preferred equity, earn outs. All these tactics have been in play. We've also seen again some, whether it be buy side or platform additions or portico add-ons. But we've also seen divestitures and Roel talked about earlier of strategic non-core assets. Those things will continue to refine themselves, right?
00:17:08:21 Even in a high-rate environment where it's hard to make traditional buyouts work in that regard, the flexibility of the structures, coupled with the overall basket of different assets and variety of assets and subsectors, makes it increasingly subsector and sector that, like I get excited about and I expect,
00:17:29:04 as Roel and I and you and other podcasts have all been talking about like it's not a matter of if, it's when the lights turn exceedingly back on, like we've got the dimmer switch, right? And they come up a little bit in a certain quarter, they go down a little bit in a certain quarter, but they've been consistently on. It's just a matter of do we put the spotlight on which subsector, for which periods and ride that wave out?
00:17:49:09 So I expect continued activity. I think the subsectors may change, the structures may change. But there's a lot of changing of hands that have to happen of these assets generate returns for financial sponsors, but also to generate returns for shareholders, for public companies that have non-core assets as they go through their strategic reviews, which don't occur anymore every 3 or 4 years.
00:18:10:11 They're happening quarterly. They're happening yearly. So, Glenn, that's my view. And I remain very positive on the health services sector as a whole.
GLENN HUNZINGER:
00:18:17:20 Nick and Roel, listen, thank you so much for your time. I love hearing your clear thoughts. I know you're working day in, day out with that sort of deal community to help people evaluate and execute on things. So I appreciate you spending the time and helping us think through some of these dynamics and certainly dynamics not only in healthcare but in deals world. So thanks for being on here.
ROEL VAN DAN AKKER:
00:18:38:07 Always a pleasure.
NICK DONKAR:
00:18:40:10 Thanks, Glenn. Thanks Roel.
GLENN HUNZINGER:
00:18:40:21 The full 2025 mid-year US Deals Outlook report for Health Services and pharma and life science are now live, we encourage you to explore detailed insights and sector highlights. For more on these topics and other insights across health industries, please subscribe to our podcast at PwC.com/ US/Next-n-Health podcast. Until next time, this has been Next in Health.
FEMALE VOICEOVER:
00:19:11:23 This podcast is brought to you by PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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