Pharma – Strong Year Ahead – Venture Capital

After a relatively flat start, activity picked up in the second
half of the year with a flurry of sizeable transactions announced
including AbbVie’s acquisitions of Cerevel and ImmunoGen,
Bristol Myers Squibb’s acquisition of Karuna and Roche’s
acquisition of Carmot Therapeutics. 2023 also saw the largest
biopharma deal in recent years with Pfizer completing its US$43
billion acquisition of Seagen. At 1,889, deal volumes globally were
largely flat compared to 2022 (1,893) but overall global deal value
was up over 28% from US$178.1 billion in 2022 to $228 billion.

Big biopharma was the principal driver of activity with
portfolio diversification and top line growth remaining strategic
imperatives, resulting from a mixture of long-standing and
anticipated pressures, including the looming loss of exclusivity on
blockbuster products, continuing pricing pressures and an
increasingly difficult global regulatory landscape for innovators
to navigate.

The upwards momentum of activity in the sector is expected to
continue throughout 2024. Not only is big pharma sitting on record
levels of dry powder (estimated at US$1.3 trillion) but the deal
making environment is expected to be favourable. Interest rates are
starting to ease and the slowdown in IPO and VC markets have left
targets which require funding for their operations with fewer
alternatives to M&A.

In pursuing their strategic goals, large biopharma players have
been looking at areas of clinical differentiation such as
neuroscience, oncology, rare diseases, immunology and obesity. With
the priority being to add to the top line (and given recent
clinical failure rates), there is a much greater focus on later
stage, approved and / or commercialised assets.

Technology and AI are also becoming an increasing area of
interest for pharma companies as they look to capitalise on their
potential convergence with life sciences across the value chain.
Alongside traditional M&A, we expect to see more strategic
partnerships and collaboration employed between pharma and
technology companies.

While private equity (PE) activity remained more subdued in
2023, there are reasons to suggest a revival of activity may be on
the horizon. PE sit on their own record level cash stocks and with
a more promising outlook for the leveraged finance market in 2024,
confidence to invest is likely to increase. In addition to these
factors, there is a vintage of PE portfolio companies in the queue
for divestment this year which will likely spur activity.

Against the backdrop of a challenging global VC market and
stagnant public markets, VC activity in the sector remained steady
in 2023 (albeit still subdued compared to previous years) with some
sub-sectors performing stronger than others. Biotech funding,
particularly those with an AI and machine learning focus, are still
one of the key areas which is attracting investment globally and is
driving an uptick in VC activity in certain jurisdictions (for
example for UK biotechs which raised £1.25 billion in VC
funding for 2023).

Deal teams globally continue to see increased scrutiny of
transactions in the sector by regulators. Anti-trust considerations
will therefore continue to be an important piece of the jigsaw when
players are evaluating M&A transactions in the sector, with FDI
regulation likely to be of increasing importance given an expected
increase in overlap with AI technology (another area of sensitivity
for many regulatory regimes).

Looking ahead, while headwinds remain, the drivers for a
continued uptick in activity in the sector are strong. With
innovative assets on the shelf, a buyer friendly environment and
near record levels of dry powder at the ready, we are optimistic
that the conditions are ripe for a strong 2024 for pharma
M&A.

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