The biopharmaceutical industry's desire for inorganic growth is expected to intensify an already heated mergers and acquisitions (M&A) environment in 2017. This is according to the EY M&A Outlook and Firepower Report 2017. With new regulatory and tax environments expected following the changing geopolitical landscape, most notably in the post-election U.S., expectations are that the industry may roar past the $200 billion in global M&A deal volume seen in the last three years.
The EY report finds the industry's need to engage in M&A has become amplified as payers continue to push back forcefully on price increases for older drugs while dampening the growth trajectory of newer drugs, creating a potentially daunting payer-driven revenue growth gap. As the probability of revenue shortfalls increases across the global industry, even companies with solid growth prospects may look to pursue M&A in 2017 as a defensive safeguard.
Pamela Spence, EY Global Life Sciences Leader, said, "While innovation and access to patients remain the industry's biggest challenges, escalating pricing pressures are impeding growth aspirations across the sector. Biopharmaceutical companies need to utilize their firepower strategically to address these challenges and create competitive advantage. With a positive deal making climate emerging for 2017, companies should look to seize the opportunities that will exist to address their growth challenges in a meaningful way."
The EY Firepower Index measures biopharma companies' ability to fund M&A transactions based on the strength of their balance sheets and their market capitalization. A company's "firepower" increases when either its market capitalization or its cash and equivalents rise—or its debt falls. This year marks the fifth year of the EY Firepower Index.
Key findings highlighted in this year's report include:
The report identifies several industry challenges and considerations likely to drive M&A in 2017 and beyond.
Jeffrey Greene, EY Global Life Sciences Transaction Advisory Services Leader, said, "Over the next 12 months, biopharma deal making could reach unprecedented heights with big pharma possessing both the firepower and the growth imperative to take it there. In this potentially frenetic deal environment, companies will need to be prepared to move quickly to make the right strategic acquisition on the right terms."