State of the market and impact
Despite macroeconomic turbulence impacting global M&A, there is a prevailing sense of optimism regarding opportunities and innovation as we enter 2024 and beyond. The dynamics of deal making in the life sciences industry have been influenced by various factors. While fundraising in the biotech sector experienced abundance during the COVID era, there is now a diminishing trend. PE and venture capital funds have become more discerning, prioritizing company strategy and the ability to leverage tech to power growth. The industry has witnessed a disconnect between buyers and sellers, leading to a trend of utilizing a strong M&A engine and a buy-and-build strategy rather than funding larger platforms. However, deal making remains active as big pharma companies strive to replenish their pipelines. Clinical stage companies supported by robust data can still secure financing for development, and remain competitive in terms of acquisition. Promising areas for M&A include pharma outsourcing, life science tools and diagnostics, while product and device manufacturers continue to be resilient sectors.
In health care services, the sector has demonstrated resilience in the aftermath of COVID-19. A backlog of demand has allowed organizations to pass the increased cost of staffing on to customers and maintain margins. Europe has witnessed the emergence of a new group of buyers, such as infrastructure investors, who view health care services as an attractive market with steady revenue streams. These investors tend to have lower investment thresholds and a slightly longer-term investment horizon. Furthermore, there is a growing trend of sponsors funding consolidators in order to create regional champions or integrate across the value chain. Sponsors show increased interest in multi-site and PPM models, emphasizing the importance of organic growth capabilities and bespoke solutions. Pharma services and health care IT have become focal points for portfolio rebalancing and diversification into different end-markets and business models. IT assets have powerful value propositions as companies face pressure to be more efficient and improve patient outcomes and experiences, simplify workflows, and enhance accuracy and efficiency – including in drug development, where driving efficiencies in process is viewed by the industry as key to alleviating today’s drug pricing challenges.
Innovation in the sector – the impact of COVID and technology
The global pandemic brought unprecedented pressure to the life sciences and health care industry; however it also served as a catalyst for technological and other operational transformation.
Contract manufacturing is increasingly relied upon, driven by the appreciation of high drug volumes and capacity restrictions. Innovations in clinical trials, enabled by emerging technology, have enhanced patient access and data accuracy, leading to a shift toward decentralized trials. The commercialization of health care has accelerated, with virtual patient interactions and telehealth gaining prominence. This has opened doors for digital health companies, paving the way for permanently hybrid interactions. Innovations in pharma services, including clinical outcome assessments and increased technology penetration, enable effective drug commercialization. The sector has also embraced workforce management efficiencies to combat clinician burnout while creating leaner and more agile organizations.
The industry’s increasing embrace of technology drives innovation and improves patient outcomes. Sponsors must navigate various components of health tech decisions and determine the most suitable approach, be it add-on solutions, building internal technology, or partnering with established players. Patient engagement tech, such as telemedicine and scheduling solutions, garners significant interest, particularly in collaboration with scalable technology developers. In the life sciences sector, the importance of data, set against the challenge of extracting valuable insights from it, is gaining greater recognition. Rather than pursuing acquisitions of technology companies to resolve this problem, there is a preference by big pharma toward forming partnerships and collaborations. Partnering with tech players to mine big pharma’s vast quantities of data effectively will be critical in driving advancements and gaining a competitive edge in the industry. The successful integration of AI, despite challenges of control and managing risk, also holds immense potential for data analysis, process improvement, and delivering more effective outcomes for patients.
What we can expect to see in 2024 and beyond
Looking ahead to 2024 and beyond, the industry anticipates an uptick in M&A activity. The gap between buyers and sellers is expected to narrow, with valuation decisions grounded in concrete forward-looking metrics. Increased deal making is expected as sponsors hold significant capital and LPs continue to be attracted to the sector, especially in the mid to large-cap space. Large-cap pharmaceutical companies remain active in selective and sought-after areas, contributing to pipeline replenishment. The auction process has become more focused, necessitating the cultivation of strong relationships with founders and teams to gain access. Portfolio rationalization will persist as investors demand greater clarity.
Biopharma developments in mRNA and large molecule therapies are expected to power the industry (and be a focus for investment) for years to come. The provision of pharma services to support this high innovation pipeline is a good way to participate in such medical advances without taking on the risk associated with direct drug development.
In the mid to long term, AI adoption will drive improvement and deal volume. Venture-funded businesses will become mainstream, integrating into day-to-day health care operations as they commercialize. Assets on the health care services side, backed by strong operators, are poised to excel. Innovative companies in pharma services leveraging technology will drive efficiency and progress. Technology will enable the delivery of care at lower costs, with a focus on preventative care and chronic disease management.
With optimism and innovation at the forefront, the life sciences and health care industry stands poised for a dynamic and transformative future.
A full recording of the panel is available online.
Disclaimer: The views expressed in the recording are the views of the panelists, not their organizations.
