PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.
The first half of 2021 saw a continued return to normal deal activity for the pharmaceutical and life sciences (PLS) sector with strong deal volume. A variety of factors have limited the number of large, transformational deals at this point in the year. Still, sector participants continue to look to M&A to innovate and maximize the potential of their portfolios.
In the second half of the year, we expect M&A activity to continue to be a focus for the sector. Large pharmaceutical companies have strong balance sheets and capital continues to be readily available. Biotech funding continues to trend well, pushing valuation up. Special purpose acquisition companies (SPACs) have continued to move towards the mainstream as a viable alternative to traditional M&A and IPOs continue to be a hotspot for investors and companies looking for the capital needed to fuel growth.
We expect the second half of 2021 to continue the return to strong levels of M&A activity seen in recent years. While headwinds and tailwinds exist, the need to optimize portfolios and innovate will lead sector participants to deploy capital through M&A.
Regulatory uncertainty has presented some concern for the sector in the form of more involved antitrust reviews. The Federal Trade Commission (FTC) announced it will work with domestic and international competition enforcement agencies to review the approach to mergers in the PLS sector. The impact of this review remains to be seen and sector participants should consider the challenges of larger transactions (such as Illumina’s proposed acquisition of Grail, Inc.) when weighing transformative deals.
Drug pricing will remain a key focus, although perhaps not to the same level as previously. In the wake of the 2020 US election, there is uncertainty about how further regulation may play out as the government grapples with other high priority issues. So far, significant drug pricing reform has been excluded from recent bills advancing through the House and Senate. The uncertainty around policy presents challenges for this sector as it seeks to optimize deployment of capital and other resources.
During the first half of 2021, some PLS deals have revolved around the need to secure supply chains. We expect this trend to continue in the second half of the year as companies contend with localized challenges, whether they are caused by further regionalized COVID-19 outbreaks or other factors. India’s recent struggles to control pandemic outbreaks present an area of concern for the sector due to the concentration of the sector’s global manufacturing output originating in the country. While companies opted to maintain flexibility over the last year, we expect them to take more definitive steps in adapting their long-term supply chain strategies in a post-pandemic world.
“The sector saw strong deal activity in the first half of 2021, especially in the CRO space. We expect this to continue as the industry builds on momentum, strong balance sheets and access to capital.”
US Pharmaceutical & Life Sciences Deals Leader, PwC US
Partner, Pharmaceutical and Life Sciences Consulting Solutions Leader, PwC US