M&A returns – but in a new form
This year has seen a resurgence in M&A activity in the pharma and life sciences sector after a rather anaemic entrance into the decade in 2020. At the time of writing, total M&A volume is up by more than 40% and value is up by over 50% on last year.
However, it has a long way to go to match the peak levels seen in 2019. This year’s largest deal at $21bn pales in comparison to Bristol-Myers Squibb’s (BMS) $74bn acquisition of Celgene and Abbvie’s $63bn bid for Allergan in 2019.
The make-up of deals has also seen a marked change. In past years, the top ten deal table would have consisted of big pharma and biotech transactions and contained no, or very little, private equity (PE) funding. This year has seen four of the top ten deals come from service businesses (CROs and CDMOs) and two of the top ten involve direct PE investment.
Key themes include service players looking to build integrated one-stop-shops to improve the strategic partnership they can offer big pharma and biotech, and in turn big pharma and biotech acquiring innovative therapy offerings, which has driven activity in novel modalities (typically mRNA capabilities) and rare disease.
The second largest deal in 2021 is in a similar vein – in February Icon announced its $12bn acquisition of PRA Health Sciences. The move brings together PRA’s mobile health platforms and real-world data solutions with ICON’s site network, home health services and wearables expertise to create a global giant in the CRO space. The combined platform will look to deliver a differentiated decentralised and hybrid trial solution. The combined enterprise will be number one or two in its key clinical markets and have formal strategic partnerships with a majority of the top 20 biopharma companies.
Overlapping with the shift to decentralised trials, and marking one of the other key trends in the space, this year’s seventh largest deal saw PE houses EQT and Goldman Sachs Asset Management acquire global CRO Parexel for $8.5bn. Parexel supports clients across the drug development and commercialisation continuum, supporting clinical research and regulatory, market access and strategy consulting and has been a driving force in the shift towards decentralised trials. It is one of two deals in this year’s top ten where PE is a buyer, compared to last year where PE was a key driver of smaller deals, the other being PE houses Advent and GIC’s $8bn bid for Swedish orphan-drug maker Sobi. This deal marks the largest Nordic buyout in five years and one of the various top ten deals in the rare disease space (more on this later).
In June, Danaher joined other service companies in the top ten by announcing its $9.6bn acquisition of Aldevron, buying out PE houses EQT and TA Associates. Aldevron produces plasmid DNA, mRNA and proteins, supporting pharma and biotech clients in research, clinical and commercial stage work. The acquisition will expand Danaher’s capabilities into the field of genomic medicine and help it to, in the words of Danaher President and CEO Rainer Blair, “support our customers and their critical mission to bring more life-saving therapies and vaccines to market faster”.
Driven by similar motivations, PerkinElmer announced its $5.25bn acquisition of antibody and reagent leader BioLegend in July. The deal expands PerkinElmer’s existing life sciences franchise into the provision of best-in-class antibodies and reagents in high growth areas such as cytometry, proteogenomics, multiplex assays, recombinant proteins, magnetic cell separation and bioprocessing. The need to acquire innovative capabilities has been a common theme among the service sector into pharma and life sciences, as well as biotech and big pharma themselves. Danaher is not alone in making a big play into mRNA this year. Sanofi’s $3.2bn bid for Translate Bio, announced in August and completed mid-September, was part of a wider strategy to build out its mRNA offering. Sanofi had partnered with Translate Bio for a number of years to co-develop mRNA vaccines. Post-acquisition it aims to unlock the potential of mRNA in other strategic areas such as immunology, oncology and rare disease. This follows Sanofi’s April purchase of Tidal Therapeutics, bringing in Tidal’s novel mRNA approach to reprogramming immune cells.
Outside mRNA, another common area of focus for large acquisitions has been rare disease. This drove the year’s third largest deal – Merck’s $11.5bn acquisition of Acceleron Pharma, bringing on board Acceleron’s Sotatercept, a potential first-in-class therapy for the treatment of pulmonary arterial hypertension, a rare blood vessel disorder. This was also the driving force in Jazz Pharmaceuticals’ February $7.2bn acquisition of GW Pharmaceuticals, a leader in the development of cannabinoid- based medicines. The deal adds GW’s approved cannabidiol Epidiolex, indicated for two rare forms of epilepsy, to Jazz Pharmaceuticals’ portfolio. The rare disease space also saw the merger of Quoin pharmaceuticals, focused on rare and orphan disease, with Cellect Biotechnology; and Horizon’s $3bn acquisition of Viela Bio, which fell just short of making the top ten deals in the year to date.
An area of concern for large cap dealmakers is the increasing scrutiny from competition regulators. In March the FTC announced a new working group, comprising antitrust enforcers from around the globe, focused on taking “an aggressive approach to tackling anticompetitive pharmaceutical mergers”. This has already put last year’s $7.1bn Illumina-Grail deal under the spotlight. Now the UK’s CMA is doing the same to the Thermo Fisher PPD deal. We don’t, however, expect to see this slow down deal making in the space.
Commercialisation services, particularly those revolving around medical communications, continue to be a key area of interest. The year opened with four deals in the subsector. January saw Bridgepoint Development Capital (BDC) acquire a stake in pharmaceutical intelligence, insights and strategy provider Prescient Healthcare Group (PHG) from Baird Capital. Baird invested in PHG in 2017 and supported the businesses to build out its data-driven technology platform and expand in the US and India. Expect BDC to support the business with further growth both organically and via M&A. In the same month, PE house NorthEdge invested in Helios Medical Communications, marking the business’s first round of external investment. Only five years old, Helios has already become a key player in the sector, supporting marquee pharma clients with the communication work on some of their most important drugs.
In March, Lloyds Bank’s captive PE arm Lloyds Development Capital (LDC) exited its position in medical communications platform Lucid Group, to be replaced by large cap investor ICG. ICG immediately supported Lucid to acquire US-based strategic consultant DiD. A month later, Prime Global, another UK medical communications platform, took investment from US investor Levine Leichtman Capital Partners (LLCP). We can expect to see more deal activity and consolidation in the space as PE makes direct investments and PE-backed platforms look to consolidate.
Elsewhere, supporting discovery and development has continued to drive returns. Dutch PE house Gilde Healthcare sold its stake in the small molecule contract research and manufacturing organisation Symeres (previously Mercachem Syncom) to French PE house Keensight. In the UK, integrated drug discovery provider Sygnature Discovery found a new partner in Rothschild’s PE arm, Five Arrows Principal Investments (FAPI). FAPI replaced PE house Phoenix Equity Partners, which invested in 2017 and supported the business to open a second site, make three strategic acquisitions and more than double headcount.
Expect to see more M&A in the service sector as the ongoing changes in the pharma and life sciences sector drive growth in those providers that are able to innovate drug discovery, accelerate and improve drug development, and support successful trials and commercialisation of high stakes assets. As more drug development comes from leaner biotechs, the ecosystem around drug discovery and development will continue to change and to be a ripe environment for entrepreneurial mindsets and the investors looking to support them.