Ernst and Young sees that life sciences industry is focused on building therapeutic scale and optimizing their portfolios through mergers and acquisitions activity. In 2018, M&A totalled to US$ 198 billion.
This is according to the 2019 EY M&A Firepower report, indicates that uncertain return on investment and the rapid pace of technology change mean life sciences companies will likely prioritize digital alliances in favor of M&A in 2019.
Further, the report indicates that in 2018 market conditions especially high valuations for target acquisitions drove deal making away from mega mergers towards acquisitions and divestitures.
According to V Krishna Kumar, Transactions Partner, EY, “after a relatively lacklustre 2018, global pharma M&A has started off on a positive note in 2019 with Bristol Myers Squibb’s US$ 74 billion bid for Celgene and Lilly’s US$ 8 billion bid for Loxo Oncology. We expect pharma M&A and strategic alliances to be driven by the digital agenda in addition the usual drivers of scale, pipeline, geography, fiscal incentives, etc. With an aggregate firepower exceeding US$ 30 billion, we expect that Indian pharma companies will continue to be acquirers of pharma assets globally. Given that US and European Gx valuations are still attractive, this is a good time for Indian pharma to build scale overseas, in addition to filling therapy and pipeline gaps.”
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As life sciences companies look to develop innovations that satisfy increasingly empowered health customers, they must accelerate their deal-making agendas on two fronts: the creation of focused business models and the acquisition of disruptive, data-centric capabilities. The acquisition of these digital capabilities will become increasingly important as new digitally savvy entrants disrupt the larger health ecosystem and life sciences companies’ business models, he added.
According to Pamela Spence, EY Global Health Sciences and Wellness Industry Leader, “the restrained M&A environment that we’ve seen in 2018 is surprising given expectations that new regulatory and tax environments would result in increased deal activity. Despite this, the need for life sciences companies to use M&A to acquire new capabilities is essential if they are to keep pace with the changing landscape. As digital technologies become the status quo, companies that have already made their therapeutic bets and invested in disruptive technologies will be better positioned to accelerate growth.”
The EY 7th edition of Firepower Index measures bio-pharma companies’ ability to fund M&A transactions based on the strength of their balance sheets and their market capitalization. A company’s ‘firepower’ increases when either its market capitalization or its cash and equivalents rises or its debt falls.
Date: February 4, 2019
Source: Pharmabiz.com