
There was good news and bad news in the latest life sciences deals report from the analysts at PricewaterhouseCoopers. Investment in the medical device industry took a hard downward turn year-over-year, but market trends signal that the life sciences market may expect a comeback before the end of 2013.
The medtech industry accounted for fewer but larger deals in 2013 Q2 compared with Q1. During the 2nd quarter medtech companies garnered about $2 billion through 7 deals, compared with the same dollar value obtained through 10 deals in Q1. That trend also carried over to other lifesciences industries, suggesting "an increase in average deal value and heightened competition for relatively scarce assets in the industry," according to PwC analysts.
Year over year, medical device investment took a sharp downward turn. In Q2 2012 the industry commanded more than $25 billion through 16 deals. Excluding so-called "mega deals," those valued at $20 billion or more, medtech investment dropped 64% compared with the same period last year, and the industry posted 7 deals during Q2 2013 compared with 16 in Q2 2012.
The biotechnology and diagnostics sectors also saw steep declines, while pharmaceutical deal value jumped about 90%. The life sciences service sector posted zero deals for the 2nd quarter in a row.
Despite the grim results, analysts were optimistic about the rest of the year, citing positive trends in the market such as readily available financing, strong corporate balance sheets and strong equity markets. Competition remains high, however, as the the total funding pool is still relatively dry.
"Looking forward, transaction activity in each of these sectors is expected to increase as acquirers continue to tap financing alternatives, despite a pullback in the debt markets from recently high levels," according to the PwC report. "Companies are continuing to seek avenues for long-term growth through geographic expansion and product innovation. These factors, combined with the level of available assets and strong fundamentals for deal activity, may drive increased competition and an uptick in deal values."
M&A activity is likely to remain popular among financial and strategic buyers, they said, noting that corporate buyers had bested their financial rivals in several recent auctions. Regardless of who’s buying, M&A activity is expected to stay strong.
Among key transactions in Q2, PwC analysts highlighted Biogen Idec’s April completion of a $3.3 billion cash deal for 50% of Tysabri, a
multiple sclerosis treatment developed by Elan Corp.; Argon Medical Devices’ April announcement of a $363 million acquisition of Angiotech Pharmaceuticals’ interventional products business; Bayer‘s (PINK:BAYRY) June closure of a $1.1 billion acquisition of California medical device maker Conceptus (NSDQ:CPTS); and Covidien’s (NYSE:COV) June spin-out of its Mallinckrodt plc (NYSE: MNK) pharmaceuticals business.