As the new year quickly approaches, many entrepreneurs and investors alike are looking closely at the biotech industry. In the past year, biotech and healthcare service companies have been acquired for record-setting premiums, and many are wondering if 2019 will see the same flurry of deals.
While many are optimistic about the future of the industry, others wonder if the biotech bubble is bound to burst in the coming years. While the future is always uncertain, there have been some new trends developing in the industry that lead many to believe biotech mergers and acquisitions are only getting better.
Rising Trends in Biopharma Deals
2018 saw unprecedented increases in mergers and acquisitions in the biopharma sector. Takeda, the largest pharmaceutical company in Asia, acquired the biotechnology company Shire for a staggering $62 billion. This marked one of the largest acquisitions ever in the biopharma industry. 2019 is expected to be another big year for life sciences deal making. One of the main reasons why interest continues to spike has to do with new emerging technologies and their positive effect on large organizations. "There is now a lot of capital in the marketplace", according to Omid Ahdieh, head of healthcare services and investment banking at Wells Fargo Securities. The average premium on biotech deals is now 60% and is double that of other sectors, and M&A deal values are expected to increase over the next year.
Larger Investments in the Healthcare Space
Confidence is continuing to grow for supporting industries of the biotech sector, and this includes health services companies. Startups in the healthcare industry are beginning to shine brightly to investors, specifically in areas such as electronic medical records, biotechnology, and health insurance. Billions of dollars are now being invested in the healthcare industry as a whole and higher valuations are expected to stay consistent over the next few years. Healthcare IT companies like athenahealth, who still received a high valuation even after experiencing a rough financial year, show that there is a large craving for this industry. Payer services are also expected to receive elevated interest over the next year.
What does the Future Hold for Biotech M&As?
While the future looks bright for biotech mergers and acquisitions based on last years figures, there is still an expectation that some deal metrics will decline over the next year. Regardless, the momentum of the sector should still continue over the next few years pushing companies to innovate their operations. While there may not be as many public offerings for healthcare companies, there are still higher expectations of increased biopharma and healthcare transactions. There will be greater emphasis on research and development as biopharma companies restructure their core businesses. It is also expected that there will be greater venture capital and private equity investments, helping organizations scale their businesses effectively while increasing their valuations in the marketplace.
As we move headfirst into 2019, many big pharma executives have shown enthusiasm towards large investment opportunities for the biotech industry. Many positive signals have surfaced over the last couple of years that point towards continuous innovation and growth in the industry which bodes well for higher merger and acquisition offers. Only time will tell if this bubble is bound to burst, but for now, the biotech M&A scene looks active and strong as moves into the next year.