The M&A market is booming and the outlook for the life sciences sector is extremely optimistic – particularly the acceptance of those within the industry of the part that personalised medicine will play in the future. However, there are six aspects that firms will need to take into account if they are to capitalise:
- Cross-border deals drive growth
The focus on cross-border transactions represents leading life sciences companies’ desire to tap new markets and also to manage risk by outsourcing drug development. “These global transactions are likely to continue, with growth difficult to come by for many companies in their existing markets,” says Reed Smith’s James Wilkinson.
- M&A deals aren’t the only transactions
With valuations high and deals not always successful, many life sciences companies are looking at partnerships and joint ventures – and sometimes these may be a precursor to a deal. “It’s a good way for two entities to get to know each other and to have an opportunity to work together,” says Reed Smith’s Carol Loepere.
- Competition is fierce
The most attractive targets are seeing strong competition from buyers hoping to secure them. Private equity buyers are also joining the contest. This is a huge area of focus for financial investors who see the opportunity for returns based on a deep understanding of particular market niches.
- It’s time to get personal
Personalised medicine offers benefits such as higher pricing, greater efficacy and improved compliance. “We certainly expect to see more life sciences companies move towards personalisation,” says Reed Smith’s Diane Frenier. However, broad indication drugs will continue to be the mainstay of many companies’ portfolios for the time being.
- Diversity suits some while specialisation appeals to others
Maintaining a broad product portfolio across several sectors is challenging and companies will need to manage M&A activity in this context; but some firms will manage risk in this way. “Businesses will inevitably reshape themselves following major deals, directing their businesses according to their strategic priorities,” says Reed Smith’s Brian Miner.
- Technology can be a differentiator
Advances in areas ranging from big data to 3D printing offer life sciences companies new opportunities to grow. “Businesses are getting more strategic about where they want to focus – they have money on the balance sheet that they want to put to use for shareholders; they’re looking for ways to add value,” says Reed Smith’s Diane Frenier.
Against this backdrop, and with a supportive financial environment and an improving economic climate – at least in some markets – the M&A boom in the life sciences sector looks set to continue. Deal volumes are on track to beat 2014, itself the busiest year for transactions since the financial crisis seven years ago.
However, the frenetic pace of dealmaking might be taken as a sign that the life sciences sector is confident about its future – that it is now investing in its future growth from a position of stability. But while there are undoubtedly huge opportunities for life sciences companies to exploit – and many businesses are excited about those opportunities – the M&A boom is also a story of uncertainty.
The difficulty is that it remains far from clear what the life sciences sector of tomorrow will really look like. Many companies are nervous about economic and political uncertainty. Competition is fierce. The regulatory outlook is muddied, particularly for personalised medicine, where many businesses are still not sure how big a bet to place on emerging technologies.
These uncertainties will take some time to resolve. In the meantime, transactions will continue apace, as life sciences companies work out where the pieces will fall for their strategies – and seek to build organisations that are fit for this purpose.