Karen Young

Despite a down year in M&A in 2022 for life sciences, 2023 is expected to be the beginning of a “new phase of large-scale dealmaking” in biopharma and medical devices, according to the 2023 EY Firepower report.

The report was released at the J.P. Morgan 41^st Annual Life Sciences Conference 2023 held in San Francisco earlier this month. “Firepower” in the report is defined by EY as the “capacity to do M&A based on the strength of its balance sheet.”

Among the factors that contributed to tepid dealmaking in 2022 were rising interest rates and fears of recession, among other macroeconomic and geopolitical factors, said Subin Baral, EY Global Deals Leader, Life Sciences, in an interview with MD+DI on Monday.

“There were a lot of these uncertainties in the environment, and the market, as you know, does not like uncertainty,” said Subin Baral, EY Global Deals Leader, Life Sciences, in an interview with MD+DI on Monday.

Baral described 2022 as “one of the lowest value deal-making years in a very long time” due to both macroeconomic and geopolitical concerns.

But in mid-December 2022, a flashpoint of change occurred with Amgen’s announcement that it would acquire Horizon Therapeutics for $28.5 billion. Horizon markets the “thyroid ocular disease blockbuster Tepezza. The information on this deal was not included in this year’s 2023 Firepower report, as the deal is not expected to be finalized until sometime in the first half of this year.

“There are strong reasons to suspect Amgen will not be the only big player making a return to the big dealmaking table in 2023,” according to the report.

Two major factors likely to encourage dealmaking to fund revenues for clinical research are the looming “loss of exclusivity for key products,” or patent loss, so M&A is expected to be “as vital as ever for securing innovation,” according to the report.

Other factors likely to spur M&A in 2023, even in the face of continuing macroeconomic and geopolitical concerns, are declining opportunities for initial public offerings (IPOs) and declining special-purpose acquisition company opportunities, according to Baral.

“There are clear indications that the big biopharmas would have to look at external R&D toward funding research in the pipeline,” Baral noted, also triggering M&A, specifically bolt-ons.

Baral said there are “valuation issues that are affecting the market” now as a consequence of companies that engaged in M&A too soon.

For a long-time, he said, M&A in life sciences was a seller’s market, Baral said. Now, not so much.

Smaller, early-stage companies are going to be pressed to excel at marketing their companies to potential buyers report’s and offering a solid value proposition.

And interest in M&A will not only focus on “novel drugs and devices that offer immediate value, but also the innovative technologies emerging outside the sector, including breakthroughs in artificial intelligence, big data, robotics, and others,” according to the report.

Alliances may not necessarily result from M&A, according to the report.

“The critical imperative is access to innovation, and companies will need to form or expand alliances and partnerships to achieve forward progress,” spawning new business models focused on ecosystems or collaboration, and that could be “the template for progress,” including new business models, according to EY.