M&A is down, but Big Pharma likely to line up 'multiple shots on goal' in 2nd half, PwC says

Deal values are down by 58% and volume has decreased by 33%, but fear not, the pharmaceutical and life sciences industry is poised for a “flurry of deals” in the second half, according to PwC.

In a new report covering the first half of the year, the professional services firm acknowledges there’s been a slow start to deal activity. But Big Pharmas are flush with cash—especially those that managed to tap into the COVID-19 market—biotech valuations are finally starting to normalize and many large companies face patent cliffs and are in need of new assets to bulk up their pipeline. All of this spells a second half that should be rich with deals.

Particularly of interest for Big Pharmas hunting for biotechs are early-stage companies and bolt-on transactions. The U.S. Federal Trade Commission has become increasingly particular about large-scale deals, which means transactions in the range of $5 billion to $15 billion might be more appetizing to those hunting. This also provides Big Pharma with the opportunity to “take multiple shots on goal” to make up for that soon-to-come generic competition. There still could be some blockbuster deals, though, PwC noted.

For the early-stage deals, pharma is looking for assets that can start to provide value from 2024 as patent cliffs have put about $180 billion in revenue for the largest companies at risk in the 2023 through 2028 time frame. PwC expects companies to focus on smaller-bite deals that can unlock value quickly, such as digital strategies, rather than large transformational deals that will take a while to show their value.

If recent deals are any indication, valuations are still high. Pharmas have been paying 50% to 100% above current trading prices, but recent market trends suggest that could soon change. Deal values came down by 58% in the first half compared to the same period last year, with just $61.7 billion spent so far and only 137 total deals. This compares to 204 for the same time frame last year.

There were some interesting deals in the half, particularly Pfizer’s $11.6 billion check for a chunk of Biohaven Pharmaceuticals. The New York Big Pharma carved out Biohaven’s migraine franchise while leaving some earlier-stage assets under the biotech’s purview.

Bristol Myers Squibb’s $4 billion acquisition of Turning Point Therapeutics was the second highest of the half in terms of deal value, followed by GSK’s $3.3 billion play for Affinivax.

Overall, the biotech industry is struggling with mass layoffs, and several companies have shut down altogether. PwC noted that there have been just 14 IPOs in the sector so far in 2022, raising less than $2 billion, while there were 104 for all of 2021 with a combined $15 billion raised. Without that access to capital, PwC says biotechs are considering other ideas—like M&A. The firm noted the Biohaven transaction and GSK’s Affinivax and Sierra Oncology deals as examples.

Zeroing in on medtech, PwC says that industry is facing similar headwinds as well as impacts from a shortage of semiconductors. Semi-annualized deal value in medical devices is down 85% from last year, but companies in the space still need to find alternative forms of revenue. The medtech sector saw $76.4 billion invested in 2021 through 93 deals. But even with the challenges in 2022, PwC expects M&A to be a priority for medtech companies.

Meanwhile, for CROs and CDMOs, macroeconomics and geopolitical tensions have created volatility, meaning these companies are more timid about deploying capital at the moment amid the uncertainty, PwC said.