Reed Smith partners Julia Boyd and Milan Thakker recently engaged in a thought-provoking discussion with industry experts about the state of investment activity in the life sciences and health care industry. The panel, consisting of distinguished professionals including Obaid Mufti of Morgan Stanley, Steven Kasok of Corden Pharma, Connie Heil of Centerbridge, Alex Bronstein of DW Healthcare Partners, Jennifer Lin of OTPP, Maneesh Madan of RadNet, and Peter Louwagie of Novartis, shared valuable insights and painted a promising picture of the industry’s future.

We have highlighted below some of the key themes and perspectives coming out of the discussion.

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.