Pharmaceutical industry shows why deal momentum is building

Earlier this year I had the privilege of meeting with a wide array of pharmaceutical industry leaders at the JP Morgan Healthcare Conference in San Francisco. It was great to be back together in person to feel the energy within an industry that is being transformed by advances in medical science and new technology.?

While 2022 saw a fall in global deal values in the pharmaceutical industry, the need to strengthen their innovation pipeline presents a compelling case for acquisition. The deal momentum is given added urgency by the prospect of a $200 billion patent cliff as old licences expire.

Margin squeeze

At the same time, this is an industry facing a growing squeeze on margins as costs rise on the one side and governments impose tightening price caps on the other. In the UK, the challenges are highlighted by the withdrawal of a number of groups from the longstanding NHS pricing agreement. In the US, pharmaceutical companies are bracing themselves for new price controls within the Inflation Reduction Act.?

The need to control costs and boost the returns from expiring licences are set to accelerate the digitisation of processes and consolidation in areas such as contract development and manufacturing organisations (CDMOs).?

The UK as a deal target?

With its world class universities and clusters of research and development, the UK is home to many of the leaders in frontier innovation. These start-ups and scale-ups are attracting interest from both larger UK groups and international acquirers.?

Well capitalised groups and private equity buyers have helped to sustain deal activity. But we will need to wait until bid-ask spreads begin to close and the lingering uncertainty over the economy and valuations eases before the deal momentum I’ve described translates into an uptick in transactions. Drawing on what I’m hearing in the market, I’m optimistic that these enablers could begin to align by the beginning of Q3, if not before.

Capitalising on the opportunities?

In the meantime, it’s important to clarify deal strategies and be ready to move in on opportunities. For me, three key priorities stand out:

1/ Determine where you want to compete

As you look to build competitive scale and focus investment, it’s important to establish therapeutic leadership in a key class of medicines. The key question is where do you have the potential to be a leader. Having clarified this, you can look to acquisitions and collaborations to bridge gaps, while releasing non-core operations in areas without leadership potential.?

2/ Be creative in funding and structuring

Constraints on finance and the need to reduce valuation risks are driving creative approaches to funding and structuring. This includes more collaborative deals and inclusion of contingent valuation rights.?

3/ Seek out opportunities for collaboration?

As Deborah Waterhouse, CEO of ViiV Healthcare highlights in her interview for PwC’s latest CEO Survey, collaboration is going to be critical in both drug development and making these innovations available.

If you would like to find out more about the deal market opportunities and how to capitalise, please see Ready to move: Gearing up for the deal rebound in 2023 and our Global M&A Trends in Health Industries:?2023 Outlook.