2021 outlook for pharma mergers and acquisitions

Market Research & Insights: A recent PwC report indicated an optimistic 2021 for the pharmaceutical and life sciences (PLS) sector with around $250B – $275B in mergers and acquisitions (M&A).

As predicted, 2020 was a down year for deal making in the pharmaceutical and life sciences sector compared to 2019 which included many transformational deals such as the acquisitions of Celgene and Allergan as well as the divestitures and spin-offs from large pharma companies. Compounding this was the impact of COVID-19 in 2020, which put a hold on many deals during the early stages of the pandemic and also significantly impacted the medical device sub-sector. These factors resulted in approximately $184B in deals for the sector, a 48.6% decrease compared to 2019.

Despite these setbacks, AstraZeneca, Gilead and Bristol-Myers Squibb (BMS) closed the top three biopharma M&A deals of 2020.

In 2021, large pharma will continue to use M&A to achieve scale as companies look to invest for the long-term in key therapeutic categories such as oncology and cell and gene therapy. 

PwC sees the potential for deal activity across all transaction sizes in 2021: several mega-merger and larger transactions ($50B+ size); many medium sized ($25B-$50B); and a flurry of the smaller bolt-on ($5B-$15B) transactions, similar to 2020.

In 2021, the pharma sector has the potential for at least one transformational deal, similar to 2019, along with biotech deals of various sizes. Some of these may be larger ($30B – $40B) along with the continued flurry of smaller deals ($5 – $15B) in the oncology and cell and gene therapy space. 

New and larger players in specialty pharma, such as Organon and Viatris, will likely do more bolt-on deals focused in traditional therapeutic areas in 2021, creating large upside potential for further M&A.

Biotech will continue to see significant interest from large pharma, with $5 – $15B sized deals, as they continue to execute on investing in innovation.  Funding from both VCs and the public markets will continue to keep premiums for M&A high, despite some headwinds from potential drug pricing reform.  With the significant amount of investment in oncology recently yielding an extremely competitive market, we see 2021 as a year where some companies may re-evaluate their ability to compete and either look to divest, partner or sell. 

Key M&A Drivers

According to the PwC report, pharmaceutical and life sciences companies are looking for a return on their digital investments with a focus on driving productivity and a better connection with patients.

COVID-19 accelerated existing sector trends including investment in digital tools and data analytics to improve the patient experience, increased retention in clinical trials by making trial participation more convenient and relevant, and shortening the time from discovery to market. This will be a differentiator for companies that can continue to build on the momentum and figure out how to make it a value creating competency. 

Digital therapies appear to be a potential alternative to traditional medicine. This is a significant innovation opportunity for the sector. An example includes Akili’s EndeavorRx, the first-and-only prescription treatment for ADHD delivered through a video game. 

Regardless of the political landscape, it is clear that the focus on drug pricing is here to stay. The current US administration’s announcement around potentially aligning the most costly therapies with most favoured nation pricing for the government programs, appears to be a step toward enhanced regulation for at least some portion of the market, with a more significant and ongoing global impact on drug pricing.