The market for mergers and acquisitions (M&A) in the healthcare industry seems to be going through consistent change. In the last couple of years, M&A’s in the healthcare segment are booming.
Recently, private equity investor Advent International confirmed that it has entered into a definitive agreement to acquire a significant stake in Suven Pharmaceuticals.
According to KaufmanHall’s M&A Quarterly Activity Report, although the start was slow, the revenue from the M&A activity in the sector in the second quarter of 2022 hit a record high of$19.2 Billion.
Due to a relatively healthy balance sheet and the desire for companies to consolidate their strength in certain areas or specialties making them either look at M&As or asset acquisitions. The recent momentum points out that these M&A activities will continue to heighten in 2023.
M&A Spree among Indian Players
Several leading Indian pharmaceutical companies like Biocon, Mankind, Lupin, Zydus Lifesciences, Torrent, Marksans Pharma, and Gland Pharma acquired brands to consolidate their growth in 2022.
Experts told Financial Express.com that companies like Dr. Reddy’s and Cipla would be looking at branded domestic assets or deals in Emerging Markets. Meanwhile, companies like Sun Pharma would be looking at assets abroad. Reportedly, Aurobindo also has plans to look into some deals.
Last week, Sun Pharmaceutical Industries Ltd agreed to buy Concert Pharmaceuticals Inc. for $576 million to access the US company’s experimental drugs for treating skin diseases, including patchy hair loss.
Reportedly, with an existing strong specialty business in the US, this move can strengthen Sun Pharma’s global dermatology franchise.
Indian companies are now acquiring strategic small assets and brands for relatively smaller valuations that fit their business growth plans without straining their balance sheets as happened in the past.
According to Bhavesh Shah, Managing Director – Consumer & Healthcare Banking, Equirus told Financial Express.com, M&A in the Indian Pharma space, so far in 2022, was essentially two-pronged: API and CDMO space and branded formulations segment with focused therapy areas.
“In the Healthcare space, it has been primarily dominant in the hospitals,” he added.
In India, generic injectable maker Gland Pharma had an interesting year. Several buyout firms including Advent International, Baring Private Equity Asia, Bain Capital, Blackstone, Carlyle and KKR have been approached to buy Fosun-owned Gland Pharma. Reportedly, if the deal becomes a success, then it will be India’s biggest pharma deal.
Currently, Fosun owns a 57.86 per cent stake in the Indian generic injectable maker. With the acquisition, Gland pharma may also get access to global companies like AstraZeneca, Sanofi, Mylan, and Organon. On 29 November 2022, Gland Pharma acquired French Contract Development & Manufacturing Organisation (CDMO) Cenexi Group, for an equity value not exceeding 20 million euros or nearly ₹1,000 crore to expand its contract development and manufacturing business in Europe.
According to recent reports, Gland Pharma will fully acquire Cenexi.
“As India’s economy expands and matures, we are seeing trends towards consolidation in all healthcare and pharma verticals. M&A is being used to bolt-on and embed novel technologies, data assets, and scientific advancement within existing operations. Companies are looking to create a platform to create a strong entry barrier and establish themselves as an end-to-end service provider. Technology is playing an essential role in driving differentiation,” Sraboni Haralalka, Co-Founder and Executive Director, Wodehouse Capital Advisors Pvt Ltd. told Financial Express.com.
Haralaka also maintained that larger companies are looking to acquire start-ups with strong tech to create a strong moat as well as take data-driven decisions.
According to VCCEdge, a data and intelligence platform, India’s healthcare firms spent $4.32 billion during January to June of 2022 on mergers and acquisitions (M&A), compared to $2.02 billion in the same period last year.
In 2022, Lupin acquired two inhalation medicines, Brovana (arformoterol tartrate) Inhalation Solution and Xopenex HFA (levalbuterol tartrate) Inhalation Aerosol from US based Sunovion, owned by Sumitomo Pharma of Japan, for $75 million.
In June 2022, Dr. Reddy’s Laboratories had acquired a portfolio of branded and generic injectable products from USA-based Eton Pharmaceuticals, for $50 million.
In May 2022, Sun Pharmaceutical acquired the Uractiv portfolio (food supplements including minerals, vitamins and adjuvants; cosmetics and medical devices used for maintaining urinary tract health) from Fiterman Pharma in Romania.
In 2022, Aurobindo Pharma made two acquisitions- the domestic formulations business of Veritaz to enter domestic biosimilar business in March and 51% stake in GLS Pharma, which has a cancer drug making facility in Hyderabad.
According to Varun Khanna, Co-Founder, Fast&Up told Financial Express.com, a lot of mergers and acquisitions in the pharma space have been happening at much larger scales, where turnovers are in four or five-digit crore rupees.
M&A Trends in 2022
Khanna Financial Express.com that in every industry, before its growth spurt goes through consolidation, there are brands that are acquired and integrated into a larger setup, and there are brands that are on their own independent journey.
Although the number of transactions was lower than in the years leading up to the COVID-19 pandemic, it was consistent with the 14 transactions that occurred in Q2 2021. Similarly, there were 12 transactions announced in Q1 2022.
“The year 2022 has seen very active M&A in the healthcare and pharma industry. With over 50 large deals totaling over $5 Billion. The activity has been dominated largely by the Indian players, including a very large outbound M&A consisting of an Indian player acquiring a US entity,” Shah told Financial Express.com.
This year, despite external pressures like the Russian war on Ukraine and COVID-19 fears, major deals in the healthcare and pharma sector still came to pass and experts claim the trend will continue in 2023.
According to GlobalData’s Deals database, the number of announced and completed deals plateaued in the first half of the year but picked up some steam within the latter period of 2022. In December, fewer companies announced new deals, in line with trends seen in the past.
According to reports, deals involving oncology and central nervous system (CNS) disease-related assets were the most popular for pharmaceutical M&As in 2022, a trend that is being witnessed in the last couple of years.
What Happened in various segments of healthcare?
In the Pharma segment, Tarun Sharma, Managing Partner, MegaDelta Capital told Financial Express.com that within the domestic pharma segment, he expects to see robust M&A activity where larger domestic players should target companies with a strong presence in key therapies that fit the larger strategy of the acquirer. Torrent-Curatio and Eris-Oaknet deals were examples of such deals in 2022.
“On the export segment, I see strong demand to acquire expertise in value added /specialized manufacturing plays such as biosimilars. Several platforms have been constructed by buyouts funds in export API/Formulations space which should also drive acquisition demand to gain scale,” Sharma told Financial Express.com.
In the Healthcare services and diagnostics segement, Sharma anticipated that market consolidation in hospitals and diagnostics will accelerate as standalone players sell to better capitalised chains in a capital-constrained environment.
According to Sharma, therapy-focused chains should enjoy a pricing premium over others as they typically demonstrate better metrics and clinical outcomes.
“I also see legacy players with weak digital competencies partnering with younger health-tech enterprises that allows them to improve the patient journeys across the spectrum, creating meaningful opportunities for M&A,” he added.
Meanwhile, in the healthtech segment, Since large corporate houses like Reliance, Tatas have entered the healthtech space, sharma forsees a trend of acquisitions of smaller health tech startups given the funding slowdown and increased focus on demonstrating profitability.
“I believe acquisitions in teleconsultation plays, therapy focused disease management. platforms, digital therapeutics can fit in well with the broader health-tech strategy of the larger players,” he added.
What are the key takeaways?
According to Haralalka, in Pharmaceuticals, one can see M&A facilitating business in various ways. Acquisitions are providing direct access to products that have been established and accepted in the market. Large and mid-size companies are acquiring divisions of smaller companies to fill product gaps as an organic growth strategy is taking a long time to yield results.
“Small companies are facing complex regulatory issues, scrutiny, supply chain, and competition from other emerging markets. Large businesses are divesting of non-core assets/brands to focus on the core portfolio. This is helping in reallocating resources to key brands and saving costs related to marketing, branding, etc.,” She told Financial Express.com.
She also pointed out that the overall healthcare delivery is moving towards a corporatised set-up and professional approach.
Meanwhile, Sharma pointed out that M&A in healthcare is now dominated by domestic deals and continues to show good growth. This reflects the maturing of our M&A market and the conviction of the existing players in the underlying dynamics of the industry.
However, M&A in Health tech has seen a slowdown in 2022 after the strong pace of activity seen in previous years.
Driving Factors of the M&A Trend
According to Shah, “Scale” of the business is going to be one of the major competitive strengths any company can have from a multiple stake-holders perspective – be it bagging large customers, hiring and retaining best-in-class talent and providing the returns to the investors.
Shah also emphasised that capital from Private Equity players or Capital markets is one of the biggest factors driving M&A in the industry.
“The Indian corporates which need to get consolidated, too are now more open to being a part of a larger platform and not remain a small promoter-driven company. This change in the mindset of the promoters and an interplay of Private Equity capital will continue to drive M&A significantly in the healthcare and pharmaceutical space,” he told Financial Express.com.
Some experts have also highlighted the influence of COVID-19 on this ongoing trend.
What Are The Possibilities in 2023?
As seen in 2022, experts predict that the main therapy areas, oncology, and CNS diseases, will remain popular for investment.
According to Haralalka, in pharmaceuticals, companies are looking to acquire larger brands. “In healthcare delivery companies are looking to penetrate tier II and III markets by creating a sustainable cost model . Overall the move is to broaden access to new products and therapeutic segments,” she added.
Moreover, within and outside of oncology, personalised medicine may be a key driver of R&D investment, experts opine.
“Healthcare and Pharma are recession-proof industries. Amidst the global uncertainties expected in 2023, I expect a lot of capital to back these sectors in the direction of aggregation, consolidation and higher deal sizes leading to more M&A,” Shah told Financial Express.com.