Biotech to be ‘Extremely Active’ in 2020 Mergers and Acquisitions

A PriceWaterhouseCoopers report predicts biotechnology firms will be “extremely active” in merger and acquisition activity and drive pharmaceutical firms’ activity in 2020.

Last year was a record-breaking year for M&A activity among pharma and life sciences companies in terms of deal value. This year will likely see just as much activity but smaller price points, PwC predicts. 

The report breaks down a global, high-level forecast for pharma, biotech, medical devices and other services, such as over-the-counter drugs and contract research organizations, by M&A activity type–divestitures, private equity, partnerships, and capital markets.

PwC sees biotech being the most active, though all other sub-sectors are expected to continue with M&A activity.

“Mid-sized biotech companies will continue to drive the activity as the next wave of progress in developing life-saving drugs is advancing at [an] accelerated rate,” PwC notes. It anticipates M&A activity to come in the form of sales, spinoffs, or IPOs this year “as a way to unlock capital to invest in innovative areas such as oncology and cell and gene therapy in the long term,” too. 

On activity types, PwC also sees partnerships playing an increasingly important role in new deals across industry.

“From supporting front-end operations for new entrants to R&D and co-promotion arrangements, we see this area continuing to grow,” PwC says. “Now, more than ever, the need to invest early or partner with innovative businesses (for delivery, data, etc.) is a critical success fact.”

The firm cites a need for scale and innovation in the over-the-counter drugs space highlighting the potential for additional partnerships. It cites a need for mid-market players for generics, too. 

With innovation underpinning the digitization of healthcare, along with the rise of precision medicine, PwC cites innovation at biotech companies “showing tremendous promise” as one of the main drivers of the M&A market in 2020. Other factors include access to capital and a need for companies, particularly smaller biotech companies, to operationalize their growth strategies.

“We expect large pharma companies to continue pursuing category leadership in order to create the scale necessary to compete long term, but these transactions are likely to come in the form of ‘bolt-on’ type deals of smaller/mid-sized companies,” PwC says. It sees $5B - $10B-sized biotechs being “the sweet spot” and potentially some $20B - $30B-sized larger deals, as well. 

Biotech IPO activity slowed down after 2018 was a record-breaking year, but it was responsible for industry reaching an all-time high of $357 billion in 2019 M&A overall.

PwC notes that biotech IPO activity in 2019 was defined by early-stage companies in immunotherapy, oncology and cardiovascular disease. The firm explains that 2020 is expected to differ from 2019 in terms of deal value given the fragmented nature of capital markets of continued interest like the oncology and gene and cell therapy markets.

“We expect 2020 to be an active year in terms of M&A, albeit likely not at the same level of deal value,” said Glenn Hunzinger, US PLS deals leader at PwC. “Strategic agendas are now set, and we will see another year of executing on these agendas.”

This coincides with other firms. 

Like PwC, Ernst & Young predicts more targeted deals driven by the interest in deepening an existing therapeutic focus. Both EY and PwC see biotech as the key sub-sector driving M&A.

With about $1.4 trillion in firepower, “opportunities will also arise in the cell and gene therapy and immuno-oncology areas as valuations for startups continue to moderate and as small- and mid-cap biotechs keep trading below averages, becoming interesting targets for big pharma companies,” said EY Global Health Sciences and Wellness Transactions Leader Peter Behner.