Healthcare deals flourish, but uncertainty looms large
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Megadeals fuel pharma activity, while healthcare dealmakers face antitrust hurdles
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Dealmaking in the pharmaceuticals and healthcare sector saw a rebound in H1 2017, with deal value increasing 51.8 percent compared to the preceding half-year. The sector delivered 244 deals worth US$98.2 billion during the period, making it the third-largest industry by deal value and fourth-largest by deal volume.
The largest healthcare deal of the period—medical supplies company Becton, Dickinson and Company's US$23.6 billion purchase of rival C.R. Bard—was driven by the increasing pressure placed on healthcare suppliers to consolidate, reduce prices and create larger product portfolios to sell to hospitals and doctors.
Pharma deals, however, have driven most of the activity in the sector, with mega transactions such as Fresenius Kabi's US$4.8 billion takeover of Akorn and Abu Dhabi Investment Authority's and GIC's US$9 billion acquisition of Pharmaceutical Product Development lifting overall value figures.
Pharma companies are increasingly using M&A as part of their R&D strategy. This strategy paid off for Takeda Pharmaceuticals, when two months after Takeda acquired Boston biotech firm Ariad for US$4.8 billion, the FDA approved Ariad's lung cancer drug Alunbrig.
"The pharmaceuticals industry has been consolidating for some time now, and I don't see why that should change," says White & Case partner Morton Pierce. "Pharma companies need M&A to replenish their pipelines, and there are still some big targets out there."
Antitrust hampers healthcare deals
While pharma M&A surges ahead, general healthcare M&A has slowed following the scuttling of major transactions by antitrust actions in 2016. In the health insurance sub-sector, the US$36.3 billion merger between Aetna and Humana and the US$50.4 billion tie-up between Anthem and Cigna both failed to complete after the US Department of Justice intervened on competition grounds.
There is also uncertainty around changes to healthcare legislation under the Trump administration. Trump's original healthcare reform package failed to get through Congress, and legislators are now working on a new Obamacare repeal deal that could see individual states take responsibility for deciding what services insurers must cover.
"The regulatory landscape is unsettled, and companies are waiting to see what happens to Obamacare," Pierce says. "There is legislation pending, but I think people are waiting to see what changes will get enacted and what effect those changes will have on their businesses."
Top pharma & healthcare deals H1 2017
1. Becton, Dickinson and Company agreed to buy C.R. Bard, Inc. for US$23.6 billion
2. Abu Dhabi Investment Authority; GIC Private Limited agreed to buy Pharmaceutical Product Development, LLC for US$9.1 billion
3. Mars, Incorporated agreed to buy VCA Inc. for US$8.8 billion
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