After a “reasonably strong year” in 2023, next year will see “similar levels” of M&A activity with increased investor interest in weight loss and cardiovascular diseases, contends professional services firm PwC.
Pictured: Businessmen shaking hands after closing a deal/iStock, AmnajKhetsamtip
Mergers and acquisitions across the pharmaceuticals and life sciences sector will reach a “healthy” level next year, with deals totaling $225 billion to $275 billion, according to professional services firm PwC’s new US Deals 2024 Outlook report.
The report points to precision medicine opportunities in oncology and immunology, areas that typically see high levels of dealmaking activity. PwC also predicts that the weight loss and cardiovascular diseases spaces will see increased investor interest in 2024 after it “went through a renaissance in 2023.”
This year “was a reasonably strong year for the pharmaceutical and life sciences sector with both deal value and volume of M&A close to pre-pandemic levels,” according to report, adding that the firm expects “similar levels of activity” in 2024.
Nevertheless, the industry will still have to contend with geopolitical tensions and regulatory uncertainties, alongside what PwC calls the “reality of higher interest rates,” all of which might push investors to focus more on “margin accretion” rather than put their money in growth-driven dealmaking.
“As regulators’ perspectives on key deal factors become better understood, there may be a return of larger deals, along with continued interest in the $5 billion to $15 billion deals to fill targeted strategic gaps,” according to the report.
In terms of initial public offerings (IPOs), PwC anticipates a gradual uptick in activity, with a preference for young companies armed with strong clinical data.
Still, beyond IPOs and M&As, companies in 2024 will look for more creative funding structures that will provide strong support for their R&D activities, while allowing them to retain control over critical compounds, PwC contends. These funding structures could include private equity and private credit, alongside other solutions such as asset swaps, innovative joint ventures, divestitures, collaborations and profit-sharing agreements.
The PwC report also identifies key drivers of dealmaking, which could help pharmaceutical and biotech companies more effectively secure funding.
Investors could be more attracted to companies with clear core areas, rather than those that work to diversify their portfolios. In addition, current and impending patent expirations will likely push big companies to seek out deals in an attempt to address gaps in their pipelines, according to the report.
The biopharma industry faced several difficulties in 2023, including a fraught macroeconomic environment, climbing interest rates and increasingly prudent investors, all of which led to a marked drop in IPO activity this year, especially compared with the previous pandemic-driven high of 2021.
Many companies had trouble staying afloat this year and were forced to launch broad cost-cutting programs or reduce their workforces.
The industry also contended with several regulatory challenges this year, including new merger guidelines from the FTC that would increase antitrust scrutiny on deals, as well as several FDA rejections, many of which have forced companies to abandon programs.
“The competition for high quality assets will remain incredibly fierce and the regulatory landscape remains challenging,” according to PwC. “With the implications of the Inflation Reduction Act (IRA) now better understood, we expect that companies will direct innovation dollars increasingly towards biologics at the expense of small molecules.”
Tristan Manalac is an independent science writer based in Metro Manila, Philippines. He can be reached at tristan@tristanmanalac.com or tristan.manalac@biospace.com.
