Pharmaceutical Mergers, Acquisitions Down in First Half of 2020
There were only two major pharmaceutical merger and acquisition deals so far, but the potential for more activity is there, PwC reports.
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By - A recent PwC insights analysis found that the pharmaceutical merger and acquisition activity saw a notable decline in the first half of 2020, but the potential for consolidation in specific sub-sectors remains high.
There were only two major deals in the first quarter of 2020, Qiagen and Thermo Fisher Scientific at $11.8 billion and Forty Seven and Gilead at a $5.0 billion value.
This number reflects a major decline from the second half of 2019, which saw four major deals during the last six months of the year, researchers explained.
The difficulties in the global pharmaceutical and life sciences industry during the first half of 2020 were due to economic, regulatory, political, and macro-economic factors.
For example, in Q2 of this year, pharmaceutical deals were just $3.3 billion despite the increase in volumes from 19 transactions in the first quarter to 22 transactions in the second quarter.
Deal values were mostly impacted by the decline in both the size and number of megadeals, which was expected after a year, researchers said. One of the deals included an $80 billion acquisition by Bristol Myers Squibb and AbbVie.
But deal values in the sub-sector were the lowest since Q1 2018.
For example, the biotech space saw extremely low deals in Q1 and Q2 of 2020, at $6.3 billion. This is the lowest level since Q2 2017.
During the COVID-19 pandemic, medical devices are vital, so volumes expectedly increased to 16 deals in Q2 of 2020 after a slow first quarter where there were only 12 transactions.
“Deal values were below levels seen in recent periods due to the prevalence of smaller transactions with only one deal eclipsing $150M in the most recent quarter. This likely reflects timing delays due to logistical challenges in completing deals while managing through the pandemic,” researchers explained.
As the demand for services increases during the pandemic, companies are redirecting their resources towards developing COVID-19 vaccines and treatments and have begun planning for how to respond to disruptions in the supply chain.
Researchers expect industry participants to look to mergers and acquisitions in the second half of the year to best maximize their limited resources.
They may do this through divestitures, private equity, and partnerships.
“We expect opportunistic buyers to leap back into M&A during the second half of the year, especially as buyers and sellers pricing expectations around valuations begin to align” researchers said.
“Buyers have been developing their investment theses and will soon begin to execute on small and medium sized deals to capitalize on the opportunities arising from all of the uncertainty facing the sector and capital markets.”
Researchers also noted some of the sub-sectors with the greatest potential for activity in the second half of 2020.
In large pharma, they expect smaller deals to take place as they actively manage their portfolios in response to rapidly changing environment.
Oncology and cell/gene therapy will likely be key areas of focus within the sub-sector, researchers said.
As for specialty pharma/generics, researchers stated that they believe this sector will grow their product pipelines through M&A remains and commit to a steady flow of smaller deals as companies continue to evaluate product portfolios and work to scale operations.
In the biotech sector, there may be a limit in the number of megadeals due to high valuations and strength in capital markets.
And the tension on the medical devices sub-sector due to temporary limits on elective surgeries in response to COVID-19 could create the need for major consolidation as companies work to remain competitive.
Researchers said that industry participants must balance the need for action with the ability to remain agile in response to regulatory and political developments.
