Pharmaceutical and life sciences: US Deals 2023 midyear outlook

Steady pace of M&A in pharma and life sciences will continue despite headwinds

The pharmaceutical and life sciences (PLS) sector continued to use M&A as a strategic tool to drive growth and fuel product pipelines during the first half of 2023. As price gaps between buyers and sellers have begun to narrow, we expect deal activity to remain strong in the second half of the year. While debt markets remain challenging and the broader macroeconomic backdrop is unclear, companies with capital flexibility have become more willing to deploy the resources needed to acquire assets with significant upside potential.

In recent periods, companies within the sector have grown incrementally aware of the need to rebalance their portfolios and focus on their core capabilities. Succession planning for key C-suite roles at some of the largest players in the industry could deliver another wave of M&A as new leaders take a fresh look at their portfolios and look to inorganic avenues for growth. However, increasing regulatory scrutiny of larger deals in the sector could restrict the number of megadeals as many dealmakers continue to evaluate how to address the increased risk to closing deals.

Explore national deals trends

Immunology and oncology are two key therapeutic areas that have seen significant scientific breakthroughs in recent periods and have drawn interest from big pharma and biotech.These subsectors have also seen a resurgence of cross-border deals and we have seen a strong level of inbound M&A by foreign acquirers into the US market in recent months.

Despite recent declines in medtech deal volumes, dealmakers continue to look for targets that will accelerate the push towards patient-centric ecosystems and product-enabled services. Improving conditions such as higher procedure volumes, easing supply chain challenges and new technologies coming to market are likely to support increased M&A activity. Value creation will have to remain a critical focus area for C-suites and boards. Companies that lag meaningfully behind their peers increasingly risk being taken private by private equity firms, which continue to have substantial amounts of dry powder and a willingness to invest in the space. 

Integration insights for pharma and life sciences

While market volatility can create strong buying opportunities for those with the right strategy, having an integration playbook that can quickly begin implementing the combined businesses’ long-term strategy is vital to achieving positive deal outcomes. When it comes to the successful integration of an acquired target, a one-size strategy does not fit all. Experienced dealmakers know that to make big, transformative transactions successful they must leverage experience, focus on an early and sustained investment in integration, and commit to creating and implementing new long-term operating models.

Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.

Key deal drivers

Capital allocation

During periods of market volatility, companies that are able to successfully identify and invest in their core capabilities have a better chance to create value. While many corporations have historically sought to diversify their portfolios, sophisticated investors have shown a preference for companies that maintain focus on a narrower, high-opportunity portfolio driven by a specific, unique capability.

Making mutually reinforcing acquisitions that align with a buyer’s unique capabilities can drive long-term success. Buyers throughout the sector are targeting assets that can accelerate innovation in early-stage R&D activities, improve speed to market and enhance flexibility.

Necessity for business reinvention

Looming patent cliffs in the later part of the decade for some of the biggest names in the sector highlight the need for constant reinvention to drive growth. Companies that use deals to transform their businesses and drive innovation can position themselves to successfully navigate these major events while continuing to drive positive returns to shareholders.

Maintaining category leadership requires companies to continuously re-evaluate their resources and rapidly fill gaps, which is often accomplished through M&A. Time and time again, results show companies that quickly and proactively integrate targets after closing are those that drive the highest shareholder returns. In this period of higher interest rates and tight credit markets, divestitures can play an important role in accessing the capital needed to double-down in core areas, according to PwC’s recent divestiture study. We have seen this trend on display in the market through active portfolio optimization plans whereby players are looking to maximize value by creating organizations focused solely on driving their core strategy and placing non-core assets in other hands.

A stream of major scientific breakthroughs in recent years focused on growing therapeutic areas is pushing category leaders to keep innovating. While many of the COVID-driven supply chain interruptions have subsided, a recent stream of drug shortages has placed renewed pressure on the industry to reinvent their supply chains to stand up to geopolitical unrest and fluctuations in demand.

Opportunity amid uncertainty

While navigating deals during periods of significant uncertainty can be challenging, those who successfully identify, execute and integrate targets can amplify long-term returns relative to those who wait for greater stability. While high inflation and rising costs of debt present challenges for many participants, they also present unique opportunities. We see the potential for a rebound in IPO volumes in future periods, but recent inactivity in the IPO markets has restricted many innovative startups from raising the capital needed to push their programs through the clinic. This has forced them to seek corporate partners (or buyers) who can provide the resources to bring their assets through commercialization.

Timing and speed are critical to achieving positive results. Having an experienced M&A team, advanced planning and quick access to funding are essential for successfully negotiating a deal in the face of geopolitical turbulence and economic volatility.

“While the broader macroeconomic backdrop remains unclear, PLS companies with capital flexibility have become more willing to deploy the resources needed to acquire assets with significant upside potential.”

— Roel van den Akker, US Pharmaceutical & Life Sciences Deals Leader
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