Life sciences M&A update: H1-2017

Life sciences industry overview and indicators

Baker Tilly Capital, LLC’s life sciences M&A newsletter provides an overview of the U.S. medical devices and products, pharmaceutical (pharma) and pharma outsourced services sectors, including recent performance and M&A trends.

M&A activity in the medical device space has been significant in recent years and continues to be meaningful in 2017. Despite continued pricing pressure and looming uncertainty in the market around tax reform, companies are actively seeking strategic acquisitions. Hospitals and healthcare facilities have been consolidating at a considerable rate over the past several years, essentially reducing the amount of buyers for medical devices. As the buyer market continues to contract it will become increasingly more difficult for newer, smaller companies entering the industry to gain traction, which will likely lead to more deal activity.

In the pharmaceuticals sector, favorable market fundamentals and healthy valuations have contributed to M&A activity in 2017. Companies continue to look to acquire new drugs, technology and intellectual property to expand and stabilize their pipelines. New companies, drugs and products frequently entering the pharma market makes for a highly competitive industry landscape. Furthermore, the chance of any given new drug, process or technology achieving widespread success and profitability remains very low. Therefore, the majority of companies with excess cash and healthy balance sheets are looking for acquisitions to expand product offerings and improve long-term growth prospects.

The outsourcing of research and development (R&D) and manufacturing processes in the pharmaceutical industry has become increasingly prevalent over the past two decades. In particular, contract research organizations conduct clinical trials and research, manage data results and develop and formulate new products to help their clients reach regulation standards. These organizations help pharmaceutical companies boost efficiency by allowing them to channel their resources toward core operations, such as drug innovation. The industry experienced a period of aggressive growth over the past five years, benefiting from an aging U.S. population and an expansion in private health-related R&D expenditures. IBISWorld forecasts that industry revenue will increase at an annualized rate of 5.4 percent to $22.2 billion over the next five years to 2021.

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