Pharmaceutical & life sciences: US Deals 2023 outlook
Strong year ahead for M&A in the sector
2022 has been a challenging year for M&A in the pharmaceutical and life sciences sector, with both deal value and volume at multiyear lows thanks to overall macro headwinds coupled with broad-based market dislocation. In 2023 we expect M&A to more closely resemble prior years with a total deal value in the $225 billion to $275 billion range across all subsectors. Ample corporate cash, the need to continue to invest to address medium-term pipeline gaps and the resetting of biotech valuations will provide the backdrop for an active year.
As the overall economic outlook stabilizes somewhat, the need to invest to achieve transformation will remain unparalleled. Achieving scale to deliver shareholder value is imperative. We continue to expect that deals in the $5 billion to $15 billion range will be the market sweet spot but see the potential for one or more deals in the $20 billion to $40 billion range before year-end. With the outcomes of the midterm elections known and the effect of the Inflation Reduction Act on pricing better understood, much of the uncertainty that plagued the sector in 2022 should be in the rearview mirror.
Pharmaceutical & life sciences deals outlook
We expect to see activity in areas of high expected future growth in 2023. Pharma and biotech M&A will continue to focus on oncology and immunology, but other areas such as central nervous system and cardiovascular diseases as well as vaccines will see interest. We expect that the market will place a significant premium on therapeutic area leadership. Promising science that addresses unmet medical needs is incredibly valuable, but significant competition for differentiated and de-risked assets remains. A clear and agile approach to evaluating options will therefore be critical in achieving desired outcomes. Thinking broadly about success is imperative as companies will need to create a brand as the partner of choice as well as a new playbook to satisfy the insatiable market demand for shareholder returns. Structured deals, new and creative approaches to R&D funding and portfolio reassessments leading to divestitures are also going to be important themes in the M&A toolkit in 2023.
The medtech sector continues to face headwinds with deal values down significantly in 2022 and uneven capital market performance. Even so, we remain optimistic about the 2023 prospects for the sector. The recent reset in valuations may provide opportunities for companies to outperform investor expectations and create shareholder value by focusing on differentiated growth opportunities such as robotic surgery, structural heart disease and connected care. Balance sheets and cash flow across the industry remain strong, and we believe M&A will remain a priority for capital allocation.
The services sector will continue to see healthy M&A levels in 2023. Achieving scale will be critical in the various subsectors, for example in differentiated contract development management organizations (CDMOs) and contract research organizations (CROs), and M&A is a means to that end. Private equity (PE) is expected to continue to be a driving force on this front. PE acquisitions of underperforming public companies in market areas that benefit from secular growth trends will also be a theme in 2023, particularly in the latter half as the debt markets reopen more formally. PE dry powder has never been greater and the services subsector has long been a favorite.
Divestitures study insights for pharmaceutical and life sciences
Given the uncertain macroeconomic outlook, portfolio management and optimization is a preeminent topic on the sector’s C-suite agenda. During 2022, companies in the PLS sector announced or otherwise implemented strategic realignment plans to drive value for shareholders, generate investment capacity or unlock trapped value.
We predict this trend will continue in 2023 and consequently companies will need to adhere to a clear playbook to deliver the desired outcomes. Prepared and proactive management teams willing to consider both acquisitions and divestitures will be best positioned to create value. An upcoming PwC study has found that timely decision making also can help increase the value creation possibilities.
1:10
“We expect M&A to rebound strongly across all subsectors in 2023. Ample corporate cash, the need to continue to invest to address medium term pipeline gaps and biotech valuations resetting will provide the backdrop for an active year.”
Follow us
