M&A and venture trends in life sciences in 2023

Pharma M&A dominates deal activity

When we published our 2022 annual life sciences M&A trends report at the beginning of the year, we predicted that activity in 2023 would be driven by spinoffs and restructuring in MedTech, an increase in mergers and acquisitions activity from large pharmaceutical companies looking to plug revenue gaps, and a rebound in private equity due to low valuations. As we looked back through the first half of 2023, we noticed pharma drove M&A deal value significantly higher even as M&A deal volume and venture value fell flat across many sectors within life sciences. We think the strong first half of 2023 portends a robust second half as well.

The trends

The headwinds affecting M&A life sciences deal-making activity have extended from 2022 into the first half of 2023 (explore our 2022 annual report). Recession fears stemming from increasing interest rates, rising inflation, and concerns around the US government hitting its debt ceiling have all contributed to a flat environment in terms of M&A volume. In 2023, both M&A and venture deal-making declined with M&A deal volume roughly flat year over year and venture deal volume down 20% year over year. That said, M&A deal value in life sciences more than doubled year over year in the first half of 2023 thanks to a surge in pharma M&A activity.

Despite a flat deal volume overall, some subsectors saw an increase in deal volume. Pharma dominated activity in the first half of 2023, accounting for approximately 49% of deal volume and over 75% of total deal value. The industry saw increased momentum from the fourth quarter of 2022 with two deals north of $10 billon. Due to patent cliffs we see across big pharma and a pile of early-stage assets borne out of pharma’s venture boom, we predict this trend to continue well into the second half of 2023 and likely into 2024.

Due to several divestitures announced in late 2022 and early 2023, the MedTech and diagnostics M&A deal value had modest growth in the first half of 2023, up about 4% year over year to $7.8 billion. When it comes to venture activity in this subsector, funding declined significantly to 45% year over year with most of the decline driven by diagnostics. However, we still see potential for deal activity to accelerate in early 2024. 

Other sectors such as the CDMO/CRO supplier space remained relatively strong in the first half of 2023, with total transaction value growing more than 140% year over year to $16.2 billon. We predict private equity firms, combined with diversification plays for life sciences suppliers, will spur a resurgence in the stable, long-term business of contract manufacturing.

We were surprised by the resiliency of the digital and health tech appetite in 2023 due to a lack of clear monetization that has kept M&A limited. From a venture perspective, digital health and health tech accounted for about one-third of money raised in the first half of 2023, about on par with pharmaceutical fundraising. With the continued rise in generative artificial intelligence (AI), there’s interest in investing in next-gen digital health and health tech. 

What's next?

The second half of 2023 should look a lot like the first, as several of the same key fundamentals remain unchanged. Given the disruption that occurred in venture in the first half of 2023, we are interested to see if venture funding rebounds or if it remains on its downward trajectory. Though there is clear regulatory uncertainty around mega mergers in pharma, several attractive assets remain available with plenty of potential buyers on the sidelines.

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