EY has recently published a year-in-review report for deal making in the global life sciences industry. The publication features some interesting statistics about deal activity in the past year, and makes predictions about which trends will carry forward into the 2019 and beyond.
The total value of life sciences deals in 2018 was US $198 billion, which was less than anticipated given that the companies in this space have “total firepower” (i.e., a measure of a company’s capacity to engage in M&A) of over US $1 trillion. According to the results of an executive survey, respondents suggested that high valuations and geopolitical uncertainties were leading reasons for not engaging in deals. Nevertheless, the same executives believe that 2019 will see more life science deal activity than its predecessor, particularly in the small to medium deal range. Product-focused innovation and portfolio optimization were cited as key deal drivers.
A major recurrent theme is the ongoing transformation of the industry. The interplay between health and technology has prompted companies in the life sciences to address the challenges to their business models. These challenges, in turn, drive deals as incumbents and newcomers alike jockey to improve their competitive position in the digital, data-driven future of healthcare. EY cites a number of 2018 deals as noteworthy for the purpose of exemplifying this changing landscape. For example, in 2018, Amazon formed an alliance with Perrigo, an over-the-counter drug manufacturer, and acquired PillPack, a pharmacy: moves that marked the e-commerce giant’s dramatic entry into the health care market. Elsewhere, Google has allied itself with Flex, a provider of digital health care solutions, while Google’s parent company Alphabet made a significant investment in Oscar Health, an insurer. Finally, EY notes that the Chinese technology conglomerate Alibaba has had remarkable successful developing its health care e-commerce business in China. These technology companies have the deep pockets, a growing consumer base and technological and operational advantages to change the value chain for delivering health services.
To address this transformation, EY expects that incumbent life sciences companies will become increasingly focused on their strategies. Furthermore, these companies are expected to engage in deal-making to execute their strategies and ensure that they are positioned to control the health care ecosystems of the future. In EY’s words “the imperative is mounting to use M&A to foster growth potential.” Deal professionals everywhere are advised to pay attention to activity in this industry, as the size and importance of the markets involved will ensure that repercussions are felt far and wide.
The author would like to thank Eric Vice, articling student, for his contribution to this article.
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