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Life sciences M&A, divestments and restructuring

Unlocking growth and creating leaner, resilient business models

Over the past five years, M&A activity has rebounded strongly, driven in part by a step-up in investor activism. M&A has become a critical element in the corporate strategy of every life sciences company, helping to unlock growth and innovation and replenish product portfolios. Divestments of non-core assets, alongside implementing operational efficiencies and streamlining portfolios, released capital to invest in new products, drive growth and help restructure the business. Strategic partnerships and alliances within and between the different life sciences sectors have driven external innovation. For example, partnerships between pharma and technology platform players have become a crucial investment strategy with acquired skills in advanced analytics and GenAI enhancing pharma companies’ approach to M&A.


The world in 2030 
 

  • Pharma has used M&A to replenish their portfolios: Growth in acquisitions has helped offset ‘loss of patent exclusivity’ for most large pharma companies. Some pharma companies have focused more on traditional therapeutic areas like non-communicable and rare diseases, whereas others have invested in acquiring new drug classes (building on the success of mRNA platforms, antibody-drug conjugates, and cell and gene therapies).
  • M&A activity has led to the consolidation across the life sciences industry: For example, mergers of equals, spin-offs and portfolio consolidation have led to the rise of a dynamic consumer health industry; and busy M&A activity has moved the dial for MedTech from point solutions to end-to-end workflows; while Biotech companies focus increasingly on partnerships with larger players, in order to access resources, expertise and new markets.
  • M&A has fuelled cross sector convergence: Dealmakers focus on assets coming to market that blur traditional sector boundaries between industries (such as diagnostics, wearables, subscription-based healthcare and Software as a Medical Device (SAMD)).
  • Companies look for assets to improve their ESG profile: Life sciences companies are willing to pay a significant premium for assets that have strong ESG credentials recognising it as a factor for increasing value.

Overcoming cross-cutting constraints

 

There are several cross-cutting constraints that could affect the prediction (not having the right skills and talent, funding models, approach to regulation, and data governance in place). The prediction can be realised by life sciences companies turning the constraints into enablers by:

  • acquiring the skills to assess potential targets and external innovations quickly including developing or acquiring talent with AI/GenAI skills to help companies compete effectively in deal-making
  • building on private financiers’ appetite for investment in life sciences, and engaging with private equity companies across both the buy and sell side especially in assets that can potentially cure or prevent diseases.
  • investing in regulatory specialists to co-manage M&A deals from early in the negotiations through to monitoring compliance across the whole process giving regulators more confidence in the deal.

 

Evidence in 2024


M&A activity is expected to pick up in 2025: The value of M&A deals in life sciences reached US$163bn in 2023 (deals announced up to the end of October), surpassing the US$135bn figure for 2022; for the pharma segment, the value of M&A activity in 2023 exceeded the same period in 2022 by 35%. Among life sciences suppliers, the value of M&A deals increased by nearly 85% year on year to US$28.3bn. Total deals in MedTech, however, fell by nearly 45% year on year to US$13.5bn, as MedTech companies focused on divestments and reorganisations, although deal volume increased.

Pharma’s ‘patent cliff’ requires a more focused proactive approach: between 2022 and 2030, pharma companies will likely lose more than US$236bn in revenue from the anticipated ‘patent cliff’, as 190 drugs (including 69 blockbusters) lose exclusivity. This represents some 46% in sales at risk for the top ten pharma companies over the next decade. Biopharma is therefore looking for innovative assets to fill the gap in their product portfolios, either by increasing R&D spend or through inorganic growth and M&A. They are also reviewing their portfolios to divest lower margin generic products and non-core facilities.

 

How AI/GenAI might impact M&A and divestments  
 

  • GenAI, can be deployed to make effective use of data, insights and benchmarks from past M&A transactions and divestments optimising value and enabling more precision valuations. 
  • GenAI can help source and screen target deals (using scientific literature, clinical trial data, and patent filings to identify promising new therapies and technologies) or conduct due diligence (by analysing large volumes of contracts and financial statements to identify potential risks and opportunities), reducing manual effort and costs and accelerating deal timelines.
  • GenAI can identify potential synergies in research capabilities (including human resources), drug development pipelines, manufacturing processes, and sales and marketing infrastructures, maximising the value created through the M&A transaction.
  • GenAI can improve strategy development through generating data-driven insights across the company’s financial health, market positioning and growth trajectory, and providing support in developing successful deal strategies.

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