Uncertainty in the wake of Brexit, the US presidential election and pending US tax reform cooled healthcare M&A activity in 2017. In 2018, however, we anticipate that current market conditions and clarity about the US’s new corporate tax rate will lead to a rebound in deal activity, causing global healthcare M&A to rise to USD 418 billion, up 50% from USD 277 billion last year.
Despite a drop in large pharma transactions in 2017, pharmaceutical companies were still actively shedding non-core assets while pursuing smaller bolt-on acquisitions as well as licensing deals to gain access to the next wave of game-changing treatments in areas such as immuno-oncology, cardiovascular disease and diabetes. We expect to see these activities accelerate in 2018.
"It's the drive to focus on core expertise by spinning off non-core assets to fund investment in strategic therapeutic areas," said Jane Hobson, chair of the Global Transactional Healthcare Group. "In the area of immuno-oncology, for example, there are some promising results in clinical trials where genetically engineered T-cells are used to attack cancer cells. What's exciting about immuno-oncology is that it has the potential to treat different types of cancer, not just one."
Healthcare deal activity
One of the largest healthcare deals completed in 2017 was Gilead Science's USD 11.9 billion acquisition of Kite Pharma, a clinical-stage biotech that specializes in immuno-oncology therapies — a transaction that Gilead CEO John Milligan called a "pivot into cell therapy."
As further evidence of this trend, Pfizer announced in October that it was considering selling or spinning off its consumer healthcare business, which would potentially put USD 15 billion in over-the-counter products up for sale. Germany’s Merck KgaA has also expressed interest in divesting its non-prescription products business, while Eli Lilly is mulling the sale of its animal health unit, which generates about USD 3 billion in annual sales, to focus on prescription drugs.
"Many big pharma companies are looking to invest in the next blockbuster drug, being acutely aware of declining revenues as patents move closer to expiry and biosimilars challenge biologics," said Ben McLaughlin, chair of our Global Healthcare Industry Group. "This is driving pharma companies to chase smaller biotech start-ups that have a lot of products in regulatory review, and driving high sales multiples on transactions.”
Healthcare M&A in 2018: Key drivers
In 2018 we forecast healthcare M&A in North America to surge to USD 250.2 billion, accounting for well over half of all healthcare transactions globally. Following North America is Europe with a projected USD 104.8 billion of deal activity, followed by Asia Pacific with USD 55.1 billion, Africa and the Middle East with USD 4.1 billion and Latin America with USD 3.7 billion.
Healthcare IPOs in 2018: Key drivers
The total value of IPOs in the healthcare sector rose to USD 15.7 billion in 2017, boosted by Chinese drug R&D company WuXi Biologics’ debut on the Hong Kong Stock Exchange in June, which raised over USD 580 million. In 2018, we forecast healthcare IPOs to become even more active, rising to USD 22.3 billion globally.
Following a peak in deal activity in 2018, we forecast that healthcare M&A and IPO transactions will decline in 2019 in line with a larger, worldwide trend of cooling deal activity in developed markets. As interest rates rise, global trade and investment growth slows, and equity prices correct, we forecast healthcare M&A to drop modestly to USD 414 billion in 2019, and further to USD 368 billion in 2020.
After reaching a five-year high of USD 22.3 billion in 2018, we forecast that IPOs in the healthcare sector will drop slightly to USD 21.4 billion in 2019 before declining further to USD 17.7 billion in 2020.