After a relatively flat start, activity picked up in the second half of the year with a flurry of sizeable transactions announced including AbbVie's acquisitions of Cerevel and ImmunoGen, Bristol Myers Squibb's acquisition of Karuna and Roche's acquisition of Carmot Therapeutics. 2023 also saw the largest biopharma deal in recent years with Pfizer completing its US$43 billion acquisition of Seagen. At 1,889, deal volumes globally were largely flat compared to 2022 (1,893) but overall global deal value was up over 28% from US$178.1 billion in 2022 to $228 billion.
Big biopharma was the principal driver of activity with portfolio diversification and top line growth remaining strategic imperatives, resulting from a mixture of long-standing and anticipated pressures, including the looming loss of exclusivity on blockbuster products, continuing pricing pressures and an increasingly difficult global regulatory landscape for innovators to navigate.
The upwards momentum of activity in the sector is expected to continue throughout 2024. Not only is big pharma sitting on record levels of dry powder (estimated at US$1.3 trillion) but the deal making environment is expected to be favourable. Interest rates are starting to ease and the slowdown in IPO and VC markets have left targets which require funding for their operations with fewer alternatives to M&A.
In pursuing their strategic goals, large biopharma players have been looking at areas of clinical differentiation such as neuroscience, oncology, rare diseases, immunology and obesity. With the priority being to add to the top line (and given recent clinical failure rates), there is a much greater focus on later stage, approved and / or commercialised assets.
Technology and AI are also becoming an increasing area of interest for pharma companies as they look to capitalise on their potential convergence with life sciences across the value chain. Alongside traditional M&A, we expect to see more strategic partnerships and collaboration employed between pharma and technology companies.
While private equity (PE) activity remained more subdued in 2023, there are reasons to suggest a revival of activity may be on the horizon. PE sit on their own record level cash stocks and with a more promising outlook for the leveraged finance market in 2024, confidence to invest is likely to increase. In addition to these factors, there is a vintage of PE portfolio companies in the queue for divestment this year which will likely spur activity.
Against the backdrop of a challenging global VC market and stagnant public markets, VC activity in the sector remained steady in 2023 (albeit still subdued compared to previous years) with some sub-sectors performing stronger than others. Biotech funding, particularly those with an AI and machine learning focus, are still one of the key areas which is attracting investment globally and is driving an uptick in VC activity in certain jurisdictions (for example for UK biotechs which raised £1.25 billion in VC funding for 2023).
Deal teams globally continue to see increased scrutiny of transactions in the sector by regulators. Anti-trust considerations will therefore continue to be an important piece of the jigsaw when players are evaluating M&A transactions in the sector, with FDI regulation likely to be of increasing importance given an expected increase in overlap with AI technology (another area of sensitivity for many regulatory regimes).
Looking ahead, while headwinds remain, the drivers for a continued uptick in activity in the sector are strong. With innovative assets on the shelf, a buyer friendly environment and near record levels of dry powder at the ready, we are optimistic that the conditions are ripe for a strong 2024 for pharma M&A.
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