Dealmaking in the life sciences sector comes with characteristics not typically seen in more traditional mergers and acquisitions (M&A). Deals often involve negotiating around complexities associated with both the unique nature of assets of life sciences companies and the unique industry ecosystem that brings these assets to life. Innovations—be they to drugs or medical equipment—can take years to develop and are not always guaranteed to succeed in the various clinical trial stages. These innovations can also involve multiple stakeholders from academic institutions, hospitals, startups, and established companies, creating a complex web of ownership issues, competing interests, and priorities.
Buyers also come with different views, perhaps wanting to license a product, do a collaboration, or undertake an M&A. Given these traits, life sciences deals can be more creatively structured, sometimes featuring a combination of an M&A transaction, coupled with a partnership or co-commercialization agreement, spin offs, or options to buy.
When the stars align, buyers are willing to put up significant funds. In 2023, life sciences M&A spending rose to $191 billion, up 34% from 2022. What does 2024 have in store for M&A deals in the life sciences sector? In this Insight, we examine the year so far and provide predictions for 2024 as well as emerging trends potential buyers and targets should keep in mind.
The first quarter of 2024 showed positive signs of robust biopharma deal activity.
The market for private investments in public equities was up, with 48 privately negotiated fundraisings of publicly traded companies totaling $4.4 billion. Follow-on offerings were also up, with 48 deals accounting for $10 billion, marking the most seen in a quarter since 2021.
Initial public offerings (IPO) were mostly positive, with $3.9 billion in IPO money raised. As is typical, M&A activity slowed in the first quarter of 2024 following a busy close to 2023. The first quarter of the year saw 26 deals total $19.4 billion, compared to $60 billion in the fourth quarter of 2023.
Finally, venture capital invested $12.4 billion into the sector through 306 deals, matching 2019.
Biopharma dealmaking could accelerate in 2024 and onwards because the industry is now reaching the much-anticipated “patent cliff” where several pharma companies have major blockbusters that are going to go off patent protection relatively quickly.
The sector retains more than $1.37 trillion in available capital for M&A, leaving a lot of “dry powder” on the sidelines for M&A activity. It is important to note that M&A in pharma tends to be driven more by strategic priority than depressed value for a particular company. So even if a price for a company is low, an acquisition will likely depend on whether that company fits into the strategic goals of the buyer.
In 2024, we expect M&A will more closely resemble prior years with a total deal value in the $225 billion to $275 billion range across all subsectors of the life sciences industry. We continue to expect that deals in the $5 billion to $15 billion range will be the market sweet spot but see the potential for one or more deals in the $20 billion to $40 billion range before year-end.
It is important to keep in mind that life sciences dealmaking is different. Along with having to navigate the unique and complex relationships that form to create innovations, the nature of the life sciences business requires specialized diligence around things like intellectual property, regulation, licensing, collaborations, manufacturing, solvency, and pricing.
Other considerations include the following: