In 2017, the total deal volume and value of the life science industry decreased almost 20%, according to EY’s “2018 M&A Firepower Report.” The EY Firepower Index examines leading life science companies and their “firepower,” the ability to enter M&A agreements based on the companies’ state of finances, such as market capitalization, cash equivalents and debt capacity. The decline in life science M&A activity in 2017 was due to a changing policy structure for health care and corporate tax rates, as the effects of favorable tax reform did not materialize until the end of the year. In contrast to this decline, the value of medtech M&A value jumped 50% in 2017, largely due to therapeutic device companies, which drove the value of aggregate M&A to over $200 billion. Sector wise, the number of biopharmaceutical acquisitions fell greatly, from representing 80% of all M&A value in 2016 to approximately 25% in 2017.

Sixty percent of life science executives surveyed for the Report indicated that they plan to pursue M&A opportunities in 2018, compared to 46% in April 2017. Of this figure, 28% of executives plan to purchase or collaborate with digital companies; for large life science companies, defined as companies with over $5 billion in revenues, 47% of executives are planning for digital partnerships this coming year. Approximately 44% of executives indicated that they are developing corporate venture capital branches to accelerate innovation and R&D, while 37% stated they are developing digital capabilities in house.

Factors driving M&A growth in 2018 include patent expirations, payer pricing pressures and increased competition in therapeutic sectors. The top five countries for investment are the US, China, the UK, Germany and Japan. EY forecasts that customer-centric care platforms, brought to the forefront with the CVS/Aetna merger, may increase consolidation, with 2018 expected to surpass 2017’s $200 billion in M&A value.

Source: EY