An image depicting life science M&A


  • Life Sciences may have been the only sector to outperform Q1 of 2022. 
  • Performance was largely buoyed by strong performance in biotech and healthcare systems. 
  • Year-over-year, deal volume fell 23% to 623 deals, slightly better than the broader M&A volume change. However, deal value was up a whopping 42% for the sector to $112 billion. 
  • Healthcare systems are seeing broad consolidation, while pharma companies search for a parachute before patent cliffs. 

The strange economic landscape of 2022 continued into the third quarter, with resilience demand pushing against a tougher macroeconomic climate. While the broad stimulus and strategic acquisitions of 2021 have died down, there is still plenty of demand for strong companies with proven value. Life Science is proving to be one of the market's strongest sectors in this changing landscape.

Some of the quarters biggest deals include: 

  • The combination of New Mexico-based Presbyterian Health Services and Iowa-based UnityPoint Health.
  • Pfizer plans to acquire cancer specialist SeaGen for $43 billion. 
  • CVS Health plans to buy Oak Street Health, focused on senior primary care, for $10.6 billion. In March, CVS also acquired Signify Health, a home-based primary care provider, for $8 billion.
  • Optum, a subsidiary of UnitedHealth, completed its $5.4 billion acquisition of LHC Group, strengthening its position as a health and hospice provider. 

Big Pharma Picks Up the Slack 

Due in part to the patent cliffs we discussed last year, large pharmaceutical companies have been aggressively pursuing smaller firms with proven pipelines. Some of the most profitable drugs on the market will see patents expire over the next three years. It’s easier and less risky to acquire companies with promising drugs than to bet on in-house development.  

Q2 is already set to continue the trend. Recently, Merck (NYSE:MRK) agreed to acquire immunology-focused Prometheus Biosciences (RXDX) for about $11 billion, and British pharma giant GSK (GSK) inked a ~$2B deal to purchase Canadian biotech Bellus Health (BLU).

We can expect acquisitions in the pharmaceutical space to continue supporting M&A activity, making biotech a likely sector to outperform the broader market. 

Regulation Trepidation, Banking Bottlenecks   

One factor weighing on M&A sentiment is a stricter regulatory environment. Larger firms are getting checked more often when pursuing combinations that threaten to consolidate the market. The regulatory environment under the Biden Administration is more ambitious than the Trump Administration, which has dampened some deals. 

Big Pharma may be the life science industry most exposed to regulatory risk. Large pharmaceutical companies looking to consolidate the treatment market for a certain disease are more likely to hit hurdles than a couple years ago. 

Another challenge for the M&A landscape, particularly in innovative fields like biotech and the broader tech sector, is a tougher banking environment. Smaller banks and venture capital firms, such as Silicon Valley Bank, have historically been a big source of liquidity for those sectors, and those banks undergo greater stress or fail all together, that liquidity could be harder to come by. 

Money in the Middle: Mid-Sized Deals Dominate 

Healthcare systems are showing a consistent pattern as well in a tighter financial environment: mid sized deals to consolidate the market and strengthen financial performance. 

The first quarter of 2023 saw frequent health system merger and acquisition activity, with a shift in what those deals look like. Regional health systems are now pursuing deals that balance their desire to lead a local market with leveraging the resources of larger entities. The result is mid-sized deals, often mergers between established players with healthy balance sheets. 

This new wave of mergers is expected to continue as organizations face tighter operating margins and seek long-term sustainability through strategic partnerships. As analyst Kaufman-Hall explained, “As health systems adapt to a new environment of razor-thin—and for many organizations, negative—operating margins, we anticipate that this new wave of mergers will continue.”

The flurry of mid-sized mergers has kept volume high for healthcare systems, with 15 deals inked in Q1, just a hair over the record-high 17 deals in Q4 of 2022. 

Eyes on AI 

2023 has been an exciting year for artificial intelligence, and even the least digitally minded people have struggled to avoid hearing about the latest AI breakthrough. While headlines tend to focus on milestones in language processing, or increasingly impressive test scores, industry insiders are looking to medicine as the next stage for major disruption. 

Technologies like ChatGPT have the power to revolutionize the economy, and healthcare is no exception. AI has myriad applications to the space, from more reliably diagnosing rare illnesses to predicting which compounds are the best candidates for a new drug. 

In addition to pharmaceutical acquisitions, biotechnology M&A will be buoyed by AI acquisitions. 

Winning in 2023 

A recent report from BDO had valuable advice for life science companies navigating the current economic environment. To summarize some key advice: 

Avoid going public prematurely: The 2022 biotech market downturn suggests that companies should only go public when ready. Assess the IPO appetite to determine whether it’s the right time to go public.

Manage cash effectively early on: In a cash-scarce 2023, aim for cash efficiency and focus to reach the next development stage. Understanding cash management throughout the drug or product pipeline is essential.

Utilize value creation strategies: Strong asset pipelines attract investors and partners. However, consider other value-boosting methods, like profitability forecasting, hiring the right team, and analyzing supply chains. 

2023: Still Plenty of Life in a Bull M&A Market 

Life Sciences are set to outperform the broader M&A market. While companies are drawing down their cash reserves and thinking twice about more expensive deals, there is still a healthy appetite for acquisitions.   

Moving forward, we can expect mid-sized deals in the hospital and healthcare space to persist, as companies consolidate to strengthen their market position and balance sheets in a low-risk way. Big Pharma has a similar idea, with conventional acquisitions to supplement their aging pipeline before patents expire. Expect AI to dominate biotech deals, as firms focus on how to leverage this incredible technology to save lives. 

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