Two large deals, BMS/Celgene and AbbVie/Allergan, led the way. However, robust activity was seen in all sub-sectors, particularly biotech, and across all types of activities (divestitures, partnerships and IPOs). As expected, pent-up demand for deal making led to aggressive action on strategic agendas in 2019. With many CEO changes leading up to 2019, we now see many businesses with clear agendas to create PLS companies of tomorrow.
“We expect 2020 to be an active year in terms of M&A, albeit likely not at the same level of deal value. Strategic agendas are now set, and we will see another year of executing on these agendas.”
Pharma deal value was largely stable in 2019, driven primarily by the Allergan/AbbVie deal in Q2 2019. However, Pharma volumes were down 16% from 2018. We expect significant activity in 2020 driven mainly by acquisitions of Biotech companies and divestitures.
Biotech experienced a significant increase in both volume and value, which was primarily driven by the Celgene/BMS megadeal. However, activity involving targets in the $2B - $10B range has never been stronger. We expect Biotech to be extremely active in 2020.
Medical Devices was down slightly relative to 2018 in both value and volume, as the larger deals in previous years did not reoccur. In 2020, we expect both value and volume to go up with targets in the $2B - $5B range being most active, with the possibility for one large deal.
Other/Services was up significantly in 2019 in both value and volume relative to 2018. While a significant portion of the value was driven by Danaher’s acquisition of GE’s Biopharma business, we anticipate the increase in deal volume during 2019 signals an active market for the sub-sector in 2020.
We expect 2020 to be an active year in terms of M&A, although activity may not reach the same level of deal value as 2019. Mid-sized Biotech companies will continue to drive the activity as the next wave of progress in developing life-saving drugs is advancing at accelerated rates. We still see divestitures (either sale, spin or IPO) as a way to unlock capital to invest in innovative areas such as oncology and cell and gene therapy in the long term. We expect the following key contributing factors to drive an active M&A market in 2020: access to capital (currently on balance sheets as well as available financing); innovation at Biotech companies showing tremendous promise; and a need for companies to act on their growth strategies.
Our expectations by type of activity:
Divestitures: We expect this trend to continue as companies look to transform into innovative biopharma businesses, unlock value and free up capital to further invest. There is the potential for several spin transactions as larger companies that made significant acquisitions in previous years divest non-core assets as a method to pay down debt.
Private Equity: Private equity (PE) has over $1.7 trillion of dry-powder, and they have positioned themselves to transact on many of the divestitures and other businesses in the PLS sector. Unlike historical periods, private equity is no longer reactive (e.g. waiting until auction processes); they are proactively looking for take-private opportunities, corporate divestitures, partnerships with mid-market companies, and other alternative structures to bridge the gap between buyers’ and sellers’ value expectations.
Partnerships (Alliances/JVs/Other): From supporting front-end operations for new entrants to R&D and co-promotion arrangements, we see this area continuing to grow. Now, more than ever, the need to invest early or partner with innovative businesses (for delivery, data, etc.) is a critical success factor. With a continued focus on reducing overall healthcare costs, channel consolidation, and the continued integration of the payor/provider landscape, it will become even more critical for companies to compete either through innovation or scale.
Capital Markets: PLS and Biotech IPO activity, in particular, slowed in 2019 after a record breaking 2018. Biotech IPO activity in 2019 has been characterized by immunotherapy, oncology, cardiovascular diseases and early-stage companies. Despite PLS IPO's moderating in 2019 from 2018 levels, demand for Biotechs remains strong, with some consideration around step-up valuation levels from the last private round prior to the IPO. For 2020, we generally see the first half being a robust period for Biotech IPOs and other fund-raising activity, with some concern for a potential slow down in the back half of the year with the general election looming.
While we expect all sub-sectors to continue with M&A activity in 2020, each sub-sector’s deals will be driven by unique factors:
Biotech: The sub-sector will likely see significant interest from Large Pharma, among others, as additional innovation and data becomes available, and buyers become more comfortable in executing deals for attractive Biotech targets with price points ranging from $2B - $10B. Given the fragmented nature of the oncology and gene and cell therapy markets, we will likely see more volume of the smaller sized deals.
Medical Devices: Medical Devices could see significant activity driven by new entrants, such as industrial products companies looking to diversify and new independent medical device companies from recent / potential spin-offs (e.g. Siemens Healthineers, GE Healthcare, etc.). We see many mid-sized ($2B to $5B) transactions as well as a variety of different divestitures as Medical Devices companies look to reshape their portfolios after years of consolidation.
We define M&A activity as mergers and acquisitions in which targets are US-based companies acquired by US or foreign buyers, or foreign targets acquired by US or foreign pharmaceutical and life sciences companies. We define divestitures as the sale of a portion of a company (not a whole entity) by a US-based or foreign seller. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement date for transactions with a disclosed deal value greater than $15.0 million, as provided by Capital IQ, as of December 31, 2019, and supplemented by additional independent research.
Information related to previous periods is updated periodically based on new data collected by Capital IQ for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Capital IQ and includes deals for which buyers or targets fall into one of the PLS industry sub-sectors: biotechnology, medical devices, pharmaceuticals, or other (such as contract manufacturing organizations). Certain adjustments have been made to the information to exclude transactions that are not specific to the PLS industry. Capital market and equity return information is sourced from Capital IQ.
US Pharmaceutical and Life Sciences Deals Leader, PwC US
Principal, Deals, PwC US
Principal, Deals, PwC US