Welcome to the 2012 edition of the Life Sciences & Healthcare Sector Forecast, published by mergermarket in association with Epstein Becker & Green, P.C. (Epstein Becker Green) and IntraLinks. Based on interviews with over 75 US-based healthcare investors and corporate executives, this report offers insight into emerging trends in investment activity, as well as a detailed forecast for specific subsectors, including biotechnology and pharmaceuticals, medical device, healthcare providers and payors, and healthcare services.
Expectations for the overall level of life sciences and healthcare M&A activity over the next 12 months are positive, according to a 65% majority. Respondents expect all segments of the sector to increase, with the medical device subsector rated highest by a slight margin. Most of the activity will take form as acquisitions and private equity buyouts. Strategic buyers will be most active throughout the sector, particularly in biotechnology and pharmaceuticals due to the longterm nature of the investment, according to over three-quarters of respondents. Private equity and other financial buyers will look to the healthcare services subsector as hospitals and providers are impacted by healthcare reform and budget cuts.
Patent litigation and implementation of the healthcare reform bill are expected to drive consolidation through the life sciences and healthcare sector. In healthcare services, the need to cut costs and adapt to potential entitlement program changes are the primary factors forcing consolidation, according to 34% and 21% of respondents, respectively. An approaching wall of patent expiration is likewise affecting the biotechnology and pharmaceuticals and medical device subsectors.
In cross-border activity, US-based investors will target China and the Asia-Pacific region excluding Japan and China, according to 45% and 21% of respondents, respectively. The area’s rapidly growing middle class, as well as government initiatives to provide national healthcare, has kept investors’ focus since last year’s report where China was similarly the respondents’ top choice.
Of the numerous provisions of US healthcare reform, the employer mandate is expected to have the most impact on M&A-related decisions. Changes to Medicare and Medicaid will have the biggest affect out of possible congressional budget segments, according to 42% of respondents. Just over half of respondents agree, the most likely development of regulatory and budget changes will be industry consolidation.
In addition to the above findings, this report offers insight into financial trends, due diligence issues and a wide range of factors influencing deal flow in the healthcare sector over the next 12 months. We hope you find this report both interesting and informative, and as always, we welcome your feedback.