- Healthcare companies announced a slew of multibillion-dollar deals in the first week of 2021.
- Insider spoke with three healthcare investment bankers to get their predictions for deal-making and IPOs for the rest of the year.
- Here’s what bankers from Lazard, Wells Fargo, and SVB Leerink told us to expect.
- Visit Business Insider’s homepage for more stories.
UnitedHealth Group is snatching up technology company Change Healthcare for $13 billion. Health insurer Centene plans to buy Magellan Health in a $2.2 billion deal. And pharmacy chain Walgreens is selling its drug wholesale business to AmerisourceBergen for $6.3 billion.
Each of these multibillion-dollar deals was announced before 2021 turned one week old.
This slew of early deal-making is a preamble to what investment bankers say will likely be a big year for mergers and acquisitions in the healthcare sector. Companies are hungry for growth, sitting on lots of cash, and after putting deals on ice early in the pandemic, they’re looking to make up for lost time.
“We’re going to see a big increase in activity this year,” John Fowler, head of the healthcare group at Wells Fargo Corporate and Investment Bank, said in an interview.
Deals in the healthcare sector nosedived in March and April, as companies paused discussions to focus on keeping their businesses running amid the pandemic, while ensuring they had enough liquidity to ride out the storm.
Deal-making began to rebound by summer, after companies got a better view of how COVID-19 would affect their businesses. Executives became more comfortable with conducting due diligence remotely over Zoom, which allowed discussions to pick up again. And with interest rates extremely low, companies also took advantage of easy access to cheap capital.
The volume of healthcare mergers and acquisitions across the globe jumped 25% in the second half of 2020, compared with the first half, according to a new report by PwC. In the Americas, deal volume increased about 6% over the first half of the year. Still, the value of global healthcare deals was about $275.5 billion in 2020, down from $474.1 billion in 2019, according to PwC.
2020 was also a record year for IPOs, per data from Dealogic, as the pandemic put a spotlight on healthcare innovation.
Investment bankers expect another big year for M&A and IPOs in 2021, and were especially bullish on the pharmaceutical space.
Insider spoke with three healthcare investment bankers, who shared their predictions for the year ahead.
Pharma companies and health insurers will round out their portfolios with new drugs and capabilities
2020 wrapped up with some big deals in the pharmaceutical and biotech industry.
Gilead Sciences closed a $21 billion acquisition of biotech firm Immunomedics in October, and AstraZeneca unveiled plans in December to scoop up Alexion Pharmaceuticals in a deal worth $39 billion.
Fowler said he expects more deals to shake out in pharma, as big firms look to “round out their pipelines” by absorbing biotech firms with therapies that have recently been approved by the FDA or are on the verge of approval.
The health insurance sector is another area likely to see more dealmaking, he said. Insurers will be on the hunt for companies that can help them deliver better care at lower costs.
Targets will be tech-enabled healthcare companies, such as telemedicine providers, or those that can open up access to big data.
“The more sophisticated your data is and the better your technology is, the more you can get in and really manage care,” Fowler said.
Wide availability of the COVID-19 vaccine and pharma innovation will drive more deals
Just 15.7 million people in the US have received a coronavirus shot so far, federal data shows. But as the vaccines become widely available to the public, we could see more dealmaking, said Dr. David Gluckman, global head of healthcare at Lazard.
“Confidence that the pandemic will resolve and that we’re going to see strength in the economy as a result of that could be a very strong underpinning for M&A activity,” Gluckman said.
Gluckman said that as big companies inch closer to losing their market exclusivity on brand-name drugs in the coming years, that creates conditions ripe for acquisitions and strategic alliances in the biopharma space.
The companies will likely start to think about deals with near-commercial and commercial-stage biotech firms that have innovative drugs that can make a difference for patients with unmet needs.
Big pharma companies could use their resources to help smaller firms bring those drugs to patients, particularly if those earlier-stage companies require a lot of cash or expensive clinical trials, he said.
When it comes to therapeutic areas, Gluckman said the focus on cancer will likely continue, but there could also be a greater focus on immunology, neurology, and other specialty areas because of the pandemic.
Read more:A top VC shares why biotechs that harness the microbiome to battle diseases could soar in 2021
2021 will be another busy year for healthcare IPOs
The pandemic shined a spotlight on the healthcare sector and turned investors’ attention to the importance of healthcare delivery, treatment and diagnostics.
That spotlight, coupled with strong equity markets, helped make 2020 a record-setting year for IPOs, particularly for biopharma companies, molecular diagnostics firms, and medical-device companies, said Rahul Chaudhary, head of equity capital markets at SVB Leerink.
There were 103 healthcare IPOs in the US last year, the most since 2014, according to Dealogic data shared with Insider. The value of the IPOs totaled more than $24.8 billion, far higher than in any previous year going back to at least 1995.
And even when the pandemic subsides, the major innovations in healthcare over the past decade — and the money devoted to the sector — will continue, Chaudhary said.
“It’s going to be another very busy year,” he said. “There’s a whole lot of enthusiasm for putting money to work and there are plenty of companies that need that money,” Chaudhary said.
Chaudhary also predicted there will be more opportunities for investment in the pharmaceutical space as companies speed the development of drugs with the use of technology.
“We have a very bright and vibrant future ahead of us in terms of the overall markets but also in terms of healthcare developments, importantly in delivering new therapeutics and new diagnostics to patients, and also delivering substantial returns to investors that choose to spend time in the space.”
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- Read more:
- 29 top VCs share their best 2021 healthcare predictions, from a surge in startups addressing where medicine falls short to a big year for digital health IPOs
- Meet the 21 biotech startups that top VCs say are poised to take off in the next 12 months
- 2021 is shaping up to be a big year for M&A. Here are 12 hot trends to expect, from a SPAC buying frenzy to a jump in cross-border deals.
- Why the IPO market is exploding in a frenzy that rivals even the 1999 euphoria
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