Pharmaceutical and life sciences: US Deals 2024 midyear outlook

Steady pace of M&A will likely continue despite headwinds  

Deal volume was up 20 percent in the pharmaceutical and life sciences sector in the last 12 months as dealmakers grew more comfortable with uncertainty. Total deal value was roughly flat in the same period. All four subsectors saw an increase in deal volume, with pharma being the one subsector also experiencing an increase in deal value. Industry players have pivoted further and faster toward high-innovation areas with the potential to fill looming loss-of-exclusivity gaps in the latter half of the decade. We expect deal activity to remain strong in the second half of 2024 despite sustained headwinds

Some of the key considerations impacting the sector include: 

  • Continued regulatory uncertainty, particularly leading up to the US elections in November, as politicians around the world remain focused on drug pricing.
  • Initial public offering (IPO) markets have shown some signs of reopening with activity levels in 2024 up over the same period last year, reflecting investors' confidence in a more stable macroeconomic backdrop.  
  • Divestitures continue to be top of mind as companies look to pivot portfolios and reorient growth, particularly as capital becomes more expensive with debt yields significantly above levels seen at the beginning of the decade.
  • Strong numbers of novel therapeutic approvals, alongside major strides in innovation (antibody-drug conjugates [ADCs], metabolic dysfunction-associated steatohepatitis [MASH], cell and gene therapies, radiopharmaceutical therapies, etc.) have buoyed interest from acquirers.
  • The beginning of 2024 reflected a strong start for medtech as well, after a difficult 2023. With a stronger financial position, medtech companies are looking to M&A to enable business model reinvention and fuel growth.

Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.

Navigating evolving regulatory guidelines in the sector

Expanded scrutiny from the Department of Justice and Federal Trade Commission on M&A may impact the strategies that pharmaceutical and life sciences (PLS) companies take in deal pursuits and execution. With persistent concerns about decreasing competition and its impact on innovation and patient access, the December 2023 updated merger guidelines include intensified assessment on market share and monopolistic inclinations as well as a differentiated focus on platform businesses (including private equity), minority investments, impacts on labor markets and serial acquisition behaviors. 

PLS companies will benefit from the following considerations as they look to succeed in this deal environment:

  • Plan for multiple scenarios 
  • Proactively maximize efforts in extended deal periods
  • Retain and engage key talent

By exercising agility as they navigate the evolving regulatory landscape, companies can navigate the evolving situation and make advantageous deal plays with high potential for value creation.

Keeping pace with new advances

What’s now?

The impact of GLP-1s continues to be felt across all categories. Many in the sector continue to grapple with understanding the long-term effect these drugs will have on other therapeutic areas. We expect dealmakers throughout the sector to actively monitor trends in demand for GLP-1s as they assess deals in the second half of 2024 and well into the future.

Others are actively looking to M&A to simply keep up with demand for these attention-grabbing blockbusters. Contract development and manufacturing organizations (CDMOs) had previously been favorite targets for many PE buyers but are now garnering interest from strategic buyers looking to gain more control over the supply chain for what they may view as critical pieces of their portfolio.

What’s next?

Given the accelerated pace of technological innovation, the industry will be looking to reinvent itself through transactions. Entrepreneurial startups have developed high-impact capabilities over the last decade that some of the industry's larger players will need to remain competitive. Instead of building in-house, transacting to transform their business can accelerate the potential for value creation when integration is managed with a close focus on operations, culture and incentive alignment.

Beyond the general back-office efficiencies expected to be created from these innovations including generative AI across many sectors, PLS has taken a leading role in developing enhanced use cases across their organizations, ranging from early-stage research and development activities all the way through approval and into supply chain management.

“Deal volume was up 20 percent in the PLS sector in the last twelve months, as dealmakers gained more comfort with uncertainty.”

— Roel van den Akker, US PLS deals leader

The bottom line

The first half of 2024 shows how the industry has learned to execute accretive deals in the face of persistent headwinds. There could be robust deal activity in late 2024 and into 2025, particularly if investors gain clarity on factors that have been a barrier to completing deals in recent years, including regulatory changes coming out of US elections and interest-rate plans from the US Federal Reserve. A continued focus on creativity (i.e. asset swaps, profit sharing arrangements, JVs, and collaborations) and flexibility in the deal process and structuring will be critical as players continue to find ways to use M&A to drive their strategic agendas.

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