Healthcare and life sciences M&A (2024)

A session report from the 21st Annual International Mergers & Acquisitions Conference, The Plaza Hotel, New York

Wednesday 5 June 2024, 1430–1530

Session Chairs
Nicola Charlston King & Wood Mallesons, Melbourne
Eric M Swedenburg Simpson Thacher & Bartlett, New York

Panellists
Dieter Gericke Homburger, Zürich
Arne Grimme De Brauw Blackstone Westbroek, Amsterdam
Rabindra Jhunjhunwala Khaitan & Co, Mumbai
Jamie Leigh Cooley, San Francisco

Reporter
Kosturi Ghosh Trilegal, Bangalore

Introduction

The healthcare/life sciences sector is one of the most active for mergers and acquisitions (M&A). Panellists discussed a variety of related topics, including strategic drivers; where the opportunities and risks lie; regulatory trends; and the practical aspects of getting healthcare deals done.

The scene was set by Eric M Swedenburg who explained that while M&A healthcare deal volumes declined in 2023, 2024 saw the value of deals rise and there was reason for optimism in the sector. Rabindra Jhunjhunwala, in drilling down into the overall global trends, felt that, in India, activity has not stalled and that the country is one of the more active regions because of its reputation as being the pharmacy of the world and the government’s emphasis on the development of vaccines.

Focusing on certain sub-sectors, Jamie Leigh felt that there was more action in some sub-sectors than others and elucidated on them on the basis of the recent EY 2024 report as follows: oncology (which remains the biggest target for dealmaking with 2023 investment hitting $65.2bn), big pharma (the return of big pharma pushed the average deal size up 77 per cent and this trend will probably continue to drive increased M&A spending in 2024) and BioTech/MedTech (BioTech and pharma deals accounted for the lion’s share of the deal volume, with 61 per cent and 23 per cent of the deal value, respectively. At the same time, smaller MedTech transactions delivered 29 per cent of the deals, but only 15 per cent of deal value).

Nicola Charlston raised the fact that PwC’s recent Global CEO Survey suggested that 54 per cent of health industry chief executive officers (CEOs) said they plan to make at least one acquisition in the next three years. Arne Grimme, for his part, felt that there were some key factors driving this activity. He cited patent cliffs as one factor because large-cap pharma companies are expected to continue pursuing midsize BioTech companies to fill pipeline gaps in the face of impending patent cliffs and some examples of this are Merck’s acquisition of Prometheus and Pfizer’s acquisition of Seagen. The other reason for this activity, he felt, was that smaller BioTechs continue to be appealing targets for big pharma through funding, M&A or collaboration (eg, licence deals). However, the venture capital market has been challenging for private BioTech companies in recent years, impacting their growth and funding opportunities.

Dieter Gericke added that with massive cash volumes to hand, pharma companies will look for innovative assets to acquire in traditional areas, such as oncology and rare diseases, as well as emerging areas, such as weight loss, cell and gene therapies and precision medicine. Innovation could also be driving M&A, along with digital health, where any company or product combining data, research, diagnostics, therapies or manufacturing with information technology, is the focus of investors and strategic players, for eg, IQVIA.

The panel then discussed a Bain report from January 2024, which noted that 60 per cent of survey respondents from healthcare and life sciences companies said that they are evaluating assets to divest. Leigh described one driver for this as being that the life sciences environment is getting more complex and that no company can excel across all types of business models. Recognising this, companies have in recent years begun ‘divesting to invest’, in other words shedding peripheral businesses and units to focus on their core value offering.

The latest trends

On deal trends, some important considerations were highlighted by the panel as follows:

• companies were expected to increasingly explore the use of partnerships and joint ventures, as an alternative to outright acquisitions to achieve their transformation goals, for eg, Merck’s $22bn collaboration with Daiichi Sankyo. Supply chain challenges are also prompting more joint ventures to share the costs and risks, though drafting these contracts is complex;
• in the European market, in particular, there seems to be the use of outsourcing arrangements driven by both expansion and concentration. With the rising costs and complexity of clinical trials, there is a growing trend towards outsourcing certain tasks to specialised service providers;
• in terms of concentration and the elimination of interim players, a nascent development was the emergence of bedside manufacturing of individualised therapies, such as cell or gene therapies. In this regard, a BioTech company may end up existing remotely in a steering facility, while manufacturing takes place in hospitals without the need to have highly qualified personnel on site;
• healthcare networks are also becoming very popular for dental care, animal care and medical care;
• the return of the ‘dual track’ in US life sciences deals, including pressure on no indemnity deals for late-stage private companies that may even be months away from an initial public offering (IPO); and
• exits through IPOs/listings. In Switzerland, a demanding M&A market, large divestitures in the industry have been conducted through IPOs/listings rather than a direct sale (eg, Galderma, Sandoz).

Regulation

On the regulatory front, the panel dealt with issues from both a foreign direct investment (FDI) and antitrust perspective. Leigh, presenting the US point of view, felt that the timing of an FDI review was being extended because of multiple new jurisdictions coming into the fray. Grimme explained that BioTech is becoming more and more in scope of national FDI regimes and, thereby, more deals are being brought within scope of a review. Jhunjhunwala added that from an Indian perspective, the government is always concerned about brownfield pharma deals. Gericke discussed the costs of medical care and the lobbying against big pharma, which has had a huge impact on how antitrust regulators (in particular, in the US) look at M&A in the pharma industry. The situation is not dissimilar in the EU as big pharma has struggled in this regard (eg, Illumina/Grail). These deals have shown that regulators do not mind looking at a deal below the thresholds based on catch-all provisions or looking at non-marketed pipelines and technologies instead of commercial competition and that gun jumping may have serious consequences. Leigh ended the discussion by highlighting the recent high-profile losses for the Federal Trade Commission (FTC) in the US, such as Amgen’s $27.8bn acquisition of Horizon Therapeutics, which was completed in October 2023. She felt that this may encourage dealmakers to pursue mid- to larger-size deals with renewed interest.