Pharmaceutical & life sciences: Deals 2022 midyear outlook

Playback of this video is not currently available

3:27

Deals to pick up in second half of 2022

All of the stars are aligned for there to be a flurry of deals activity across all areas of the sector despite the slow start to the year so far. Many large pharma players are flush with cash (particularly those that have COVID-19 treatments in their arsenal), biotech valuations have been normalizing after years of a boom market and the 2025 patent cliff is rapidly approaching, all making for a strong deal environment.

Given the broader labor changes, supply shortages and constantly changing supply chain strategies and operations, the focus on quality can be challenging to sustain. Yet the downside can have massive impacts on businesses, including the potential inability to manufacture products.

The long litany of macroeconomic and regulatory headwinds has CEOs looking for transactions that are easily integrated and will get cash off their balance sheet as inflationary pressures mount. 


Pharmaceutical & life sciences deals outlook

Increased scrutiny from the US Federal Trade Commission (FTC) around larger deals could mean that 2022 will be a year of bolt-on transactions in the $5 to $15 billion range as pharma companies take multiple shots on goal in order to make up for revenues lost to generic competition in the remainder of the decade. However, don’t rule out the potential for larger deals ⁠— consolidation is good for the health ecosystem and drives broader efficiency.

Expect to see big pharma picking up earlier stage companies to try and fill the pipeline gaps that are likely to start in 2024. While market conditions suggest bargain prices for biotech are possible, recent transactions indicate that pharma companies are still paying significantly above current trading prices (ranging from approximately 50 to 100% of current trading), but below the peak valuations of recent memory.

In the first few months of the year, semi-annualized deal value was down 58% from the same period last year, with companies investing just $61.7 billion so far. Only 137 deals were announced during that time, compared to 204 in the year-prior period.

Talk of drug pricing regulations continues in Washington as Congress bats around a pared down version of the Build Back Better plan. Expect some of that tension to ease in the fall if a new Congress takes on a different agenda.

Other areas of the sector like medical devices face similar headwinds from regulators, and continue to deal with a greater impact from semiconductor shortages. Even though semi-annualized deal value in the medical device space is down 85% from the same period the prior year, expect these companies to remain focused on M&A as the subsector searches for alternative forms of revenue ⁠— particularly from new consumer-centric technologies.

Macroeconomic headwinds and geopolitical tensions have created volatility in spending at CDMOs and CROs, limiting their willingness to deploy capital as the uncertainty persists. 


Sub-sector outlook

Pharma

Deal activity in the pharma space is down by 30% on a semi-annualized basis. Yet, deal values have dropped about 50% in that time period, reflecting pharma’s appetite for smaller deals around a single asset or bolt-on deals, as the industry attempts to stay below the radar of regulators at the FTC.

Like most other sectors, pharma continues to experience labor shortages, supply chain snags and higher input costs ⁠— particularly around packaging ⁠— due to inflationary pressures. In an effort to stay nimble in a rapidly changing environment, pharma companies are re-examining capital allocation strategies, as well as considering alternative options for their supply chains.

Even as uncertainty persists, expect pharma to focus on inorganic growth ahead of some of the world’s largest drugs going off patent later this decade.

Biotech

The XBI biotechnology index hit a peak in January 2021, outpacing the S&P 500, but has been on the decline since with more than 60 biotechs announcing layoffs in 2022 so far and several announcing they are closing their doors for good.

There were 104 biotech IPOs in 2021 that raised nearly $15 billion in funds, while 2022 has seen only 14 IPOs raising less than $2 billion collectively.

While biotech executives have been slow to accept lower valuations, Pfizer’s recently announced acquisition of Biohaven and GlaxoSmithKline’s announced deals with Sierra Oncology and Affinivax suggest more companies are willing to explore alternative means of financing as capital becomes harder to come by. 

Medical device

Much like pharma, the medical device subsector saw a banner year for M&A in 2021 with $76.4 billion invested across 93 deals. But also like pharma, the sector has been slow to gain traction in 2022, with semi-annualized deal value down 85% as many acquirers shifted their focus to integration and value capture activities.

Recent deals reflect a continuation and acceleration of several sector trends within the industry as established companies continue to seek to enter higher growth adjacencies and bolster their digital capabilities. Valuations of medical device companies have come to reflect investor expectations for significant growth in the future, but recent industry consolidation, ongoing supply chain issues and geopolitical concerns may present near-term challenges to M&A activity. Despite the headwinds, we expect M&A will remain a priority across the subsector.  

Other/services

Three of the top 10 deals so far this year were in this subsector. Investor Warburg Pincus announced the acquisition of analysis company Pharma Intelligence from Informa for $2.3 billion. Meanwhile, Thermo Fisher closed its $1.9 billion acquisition of reagent manufacturer PeproTech, and rounding out the top ten deals so far this year was the Becton, Dickinson and Company deal with pharmacy automation provider Parata Systems.

These deals are unlikely to be indicative of the space more broadly, but are a good sign that companies are still willing to deploy capital in spite of the larger uncertainties. 


“Pharmaceutical and life sciences companies continue to actively search for new capabilities and inorganic growth, which we believe will lead to a rebound in deal activity in the second half of the year.”

— Glenn Hunzinger, US Pharmaceutical & Life Sciences Consulting Solutions Leader

Key deal drivers

Competition for assets and capital efficiency

Upcoming patent cliffs will put nearly $180 billion in revenue from the largest pharma companies at risk between 2023 and 2028. But unlike the patent cliff of the early 2000s that brought swift competition for small molecule drugs, expect these sales to be eroded more slowly, as biosimilars are both harder to manufacture and have slower uptake than their generic counterparts.

But pharma is in a good position to combat this issue as most companies have plenty of cash on hand and can take more risks by purchasing early-stage assets. With capital becoming harder to come by for most biotechs, pharma is in a good position to acquire many of these companies at a discount from their highs of just a couple years ago. 

Navigating uncertainty

Drug pricing, increased transparency, antitrust scrutiny, inflation, the conflict in Ukraine, tensions with China ⁠— all of these issues are weighing on pharma CEOs as they attempt to normalize their operations after two years of disruptions from the pandemic.

There will likely be more clarity after the midterm elections around certain regulatory issues, but others are unlikely to ease. Concerns around inflation and energy supplies will persist ⁠— potentially increasing as the war in Ukraine drags on. Expect pharma and life science executives to revisit operational strategies as they navigate these uncertainties.

Speed to unlocking value from transformational M&A

After some of the transformational deals that took place in 2021, expect pharma and life sciences companies to look for strategies to unlock value quickly. Many of these companies will be exploring new digital capabilities that can help speed integration, as well as reimagining ways to maintain company culture even as many new employees remain completely virtual.

Increasing resilience & security

While the IP-driven nature of the sector makes it more resilient to outside forces, geopolitical pressures are still making it difficult to identify the optimal locations for assets or determine what markets to invest more heavily in.

At the same time, an increasingly digital world is making cybersecurity even more of a priority. Cyber diligence plays an important role in both pre- and post-deal planning, allowing acquirers to better understand the current state of affairs during a transaction.

Contact us

Glenn Hunzinger

Glenn Hunzinger

Partner, Pharmaceutical and Life Sciences Consulting Solutions Leader, PwC US

Roel Van Den Akker

Roel Van Den Akker

Partner, Pharmaceutical & Life Science Deals Leader, PwC US

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.

Hide