Find episode transcript below.
JENNY COLAPIETRO:
00:00:03:10 Welcome to PwC’s Next in Health podcast. I'm Jenny Colapietro, PwC’s Consulting Commercial Leader and today we're here with some returning guests, Nick Donkar and Roel van den Akker. Nick is our Deals leader on the payer-provider side and Roel is our Deals leader on the Life Sciences and Medical Device side. And both of them are going to reflect on some deals and lessons and where they've been this year and some expectations for 2025. So, welcome back Nick and Roel.
NICK DONKAR:
00:00:34:10 Thank you for having us, Jenny.
ROEL VAN DEN AKKER:
00:00:35:05 Excited to be here.
JENNY COLAPIETRO:
00:00:37:10 Well, looking at this year in Deals, let's start off and get both of your perspectives on what stood out to you and what were the main drivers that you saw in the deals space thus far, and any lessons learned?
ROEL VAN DEN AKKER:
00:00:50:10 Jenny, maybe I'll start here with a little bit of the biopharma and Med-tech look back. Some of the things that stood out from our perspective, we obviously track activity levels both from a value and from a volume perspective. And I think if you look at the life sciences and biopharma sector in a broader sense, it's actually been a fairly active 2024.
00:01:11:02 We saw activity levels kind of very strong out of the gates in the beginning of the year, but then I do think as we kind of moved throughout the year, people got a little bit more cautious, particularly as, the election thereat. And I think another thing that stands out for us when we're sort of analyzing the data over 2024 is that value of M&A in the biopharma space was down over ‘23, a lot more than volume of activity was down.
00:01:38:10 So, volume was actually quite healthy from an M&A perspective in a larger historical sense. And when we think about M&A activities, both Nick and I like to really look at volume a lot more than value, whereas value tends to really grab the headlines. But volume, for us, is really a real reflection of kind of the health of the M&A market.
00:01:59:04 So, what we saw is companies in the biopharma and Med-tech sector moving towards smaller transactions, which I think is something that's been going on for a while and really step on the brake a little bit as the year progressed, particularly as elections drew nearer and the implications of some of the interest rate decisions of the Federal Reserve were better understood. But I think overall a pretty good year from a biopharma and med-tech perspective and M & A for 2024 on the biopharma med-tech side, Jenny.
NICK DONKAR:
00:02:29:10 Yeah. And Roel, you couldn't have said it any better. If I pivot to health services, Jenny, on the payer-provider side in particular, the volume play is where we're focused, right? And it does indicate that healthiness in the market, similar to Roel's, comments, if I look at the health services sector, while deal volumes were slightly down a little bit 9% compared to 2023 levels.
00:02:55:09 The word that I like to use in my conversations historically for this year has been resiliency, resilience in the market relative to where we were and where we're going. And what I mean by that is we're still effectively coming off 2021 and 2022 levels, which were sort of off the charts unprecedented from an overall volume perspective.
00:03:17:08 So, even in the midst of some of these headwinds that we had in health services or perceived headwinds over the last several months, deal volume was very resilient and is clearly and decidedly head-over-heels higher than what it was pre-pandemic levels. So, it speaks a lot to the market one and then two, the regulatory in ‘24 with the regulatory challenges and valuation challenges/ uncertainty, it still supported a very robust market overall in health services.
00:03:48:00 And we'll get into some of the details later, but I think that the themes across the sectors are very similar.
JENNY COLAPIETRO:
00:03:55:10 Thank you for sharing those themes. Building on that, I'm curious about the trends you're observing and Nick, maybe we first start off within the health services market, just given the regulatory shifts and the resilience and deals volumes that you both mentioned, Nick, where do you see the most significant changes occurring in the health services landscape and how are companies adapting to these developments?
NICK DONKAR:
00:04:18:10 Yeah, Jenny, great question. You hit on it on the onset of your question, which is around the sort of the new administration and their pro-business stance, right? And that's generally going to impact regulatory reviews and approvals and again make it more pro-business. That's one element as you think about health services and some of the drivers that we're seeing that are going to spur activity in future periods.
00:04:43:04 The other piece or the other item I should mention came out of our piece and it's the sort of key statistic we're looking at. And that is for health services, the overall length of hold by private equity investors and some of their assets, it's almost at an all-time high. It's in about five-and-a-half years right now. So, all of those investments in the deal activity that we saw in 2020, ‘21 and ‘22, a lot of those assets on a global basis have been held for a long period of time.
00:05:13:10 So, when you think about that as a driver of generating return for investors, coupled with pro-business administration and Roel hinted on, talked about the election. So, now we've got a pro-business administration, you've got again, and this is going to be regurgitating some of the themes we talked about previously, but it's still very much front and center, which is the amount of excess capital through private equity investments.
00:05:36:03 And then strategic reviews by our large corporate players both for-profit and not-for-profit. All of those levers in and of themselves are huge tailwinds for our potential deal market in health services for 2024. Roel, maybe I'll turn it to you to talk about pharma and some of the themes there and the consistency across those themes across our sectors.
ROEL VAN DEN AKKER:
00:05:57:05 Yeah, thank you, Nick. And I think you kind of hit the nail on the head there. I would maybe make sort of a more generic comment and I'll kind of tailor it a little bit specifically to kind of biopharma. I do think Jenny, deal-making, and Nick and I have been in this game for a long time, does tend to benefit from a macro backdrop or an environment that is high on predictability.
00:06:17:04 Because in the end M&A is really a momentum game, a confidence game. And I think what really tends to impede deal-making is sort of a macro backdrop where people are a little bit uncertain about where things will move, right? So, if we think about the last few years, we had inflation ramping up, we had interest rates coming up in response to that.
00:06:40:05 We had a debate about a hard lending versus a soft lending and we had an election not only in the United States but in a lot of large Western economies globally. And I think as we move into 2025, I do think we're starting to move into a macroeconomic environment and a political environment where there's at least a little bit more predictability.
00:07:03:03 Which I think in turn will boost deal makers’ confidence to proactively lean into this. So, interest rates have started to come down and I think we're starting to approach a spot in our economy where the neutral rate is starting to come into sight. We now also have a situation where the elections are largely behind us.
00:07:24:03 So, I think what that means generally is an environment that is a little bit more predictable and on the margin that tends to be a creative to M&A activity and deal-making activity generally, right? So, that's sort of my general perspective on the market.
00:07:38:03 Similar Nick, to the point you made, if we try to tailor this to biopharmaceuticals and med-tech sort of in a specific sense, I do think the topic that will dominate 2025 from a perspective standpoint is really growth and making sure that companies can deliver on growth expectations that the market has for them.
00:08:00:10 In our sector we spend quite a lot of time about the GLP ones and the haves and have-nots in terms of people that have growth and growth has really come on an uneven basis. And I think that's only going to get compounded by the fact that a large dissection of the biopharmaceutical MNCs are going to go through losses of exclusivity with main products over the next five to seven years depending on what horizon you take.
00:08:27:05 So, if you combine those two aspects, from my perspective, Jenny, right, like a more predictable environment and a need to kind of really address growth on a go-forward basis to get closer to the long-term industry growth rate for pharma, which is sort of in the 4 to 5% range and not everybody is there. I do think that's going to naturally board well for deal-making going into the year.
NICK DONKAR:
00:08:50:07 Yeah. Roel, real quick and Jenny, I think it's important to note, I didn't even go down the route, that Roel went around interest rates and the impact of the deals market, not because of anything other than people have been hawkishly watching the interest-rate environment over the period in time and it's yet another tailwind as you think about overall to Roel's point, right?
00:09:12:05 An overall macro-economic indicator of things to come, right? When you think about overall volume, so that is just yet another feather in investors' caps, that coupled with one other piece that Roel, you were hinting at as you talked about growth and the need for growth. I would just add that from a health services lens, it's growth, and I say growth two ways.
00:09:37:09 One, traditional acquisitions, maybe off campus or in other aspects to grow footprint geographically when you think about health services, but also growth from a financial margin profile perspective. So, individual corporations, again for-profit, not-for-profit, or even portfolio companies within larger private equity investments are really looking at their overall assets and identifying non-core.
00:10:04:04 And if it makes sense based on their strategic review to sort of shed or divest those non-core assets, they're going to be taking those to market here to generate some sort of incremental level of return that I think is important and we should be seeing in ‘25 a good influx of divestitures in the marketplace that all these other things hold true around the levers would make for more robust deal-making across all elements of the payer-provider space to further supercharge this.
00:10:37:00 So, I don't want to say it's a perfect storm, but it's a great set of fact patterns to have when you think about this relative to prior periods, which we couldn't say all of these things existed.
JENNY COLAPIETRO:
00:10:48:04 That makes a lot of sense. And given the trends that you both shared, I'm interested in understanding the challenges and potential impediments you foresee impacting deal volumes in the upcoming year. Specifically, can you help our listeners understand like how do concerns about deal volumes versus multiples and the extended average life hold for private equity investments, how does all of that play into this landscape?
ROEL VAN DEN AKKER:
00:11:11:10 So maybe Jenny, I'll go first to try and answer that. I think what we're really focused on in biopharma is still this notion that the innovation that's being delivered by the biotech community in areas of unmet medical need is still fantastic. The number of new drug approvals was very solid in this current year, and I think if you believe the forecasts, it’s going to continue to be an active year for approvals going into 2025 as well.
00:11:36:07 What that means kind of against the backdrop of what Nick and I have just been talking about is that people are going to look at our innovation and kind of think about acquiring that and it's naturally going to attract a lot of competitors to get their hands on innovation that's truly differentiated around clinical readout and inflection points to make sure that they can deliver on growth prospects that they have for their shareholders.
00:12:01:10 So, some of the interesting things that we think are going to play out is increased competition for really differentiated science, which is naturally going to mean that companies are going to have to have a very strong process in place to actively adjudicate and litigate those opportunities when they come through and be really quick to execute on those opportunities.
00:12:23:08 I still see that as an area where some companies have challenges, but the ones that do have that process down can move with speed and purpose in a world of M&A that's increasingly competitive, particularly for differentiated science. That's where I'm really sort of seeing companies deliver the value and if challenges can be overcome there, it can really have a meaningful impact to those company shareholders as they execute their strategy.
NICK DONKAR:
00:12:52:10 Yeah, well, I echo those comments and would just add from a payer-provider perspective, Jenny, the question around challenges, there's an overarching umbrella around regulatory concerns and anti-competitive practices and things like that that various regulatory agencies both at the national and state level will be forced to deal with.
00:13:12:03 I think that that has been an overarching theme for the past administration that hopefully we get more clarity on going forward because that has been a challenge. It's been, a number of overarching reviews of large-scale health system transactions that we've all read about in the paper. Whether that goes away completely or not, I am not sure.
00:13:33:10 However, I would say the recent California law that was being banned about to look at and further provide a lens of review for private equity investors in that state that was honestly being looked at by all the other states without getting into the weeds on the regulatory nature of it. But the fact that that bill did not move forward sort of moves the clouds a little bit, right, around future transactions.
00:14:00:04 We talked about the administration previously, so that sort of should help overall volume. I think on the multiple side we're seeing a couple of things align, and this is probably consistent across both sectors and that is that with volume coming to market, those multiples and the quality of the assets get banted about and get discussed. Obviously, not every asset is of equal value in the same sub-sector, but when you get volume into the basket of transactions that that will help sort through the good, the bad, and the ugly.
00:14:34:02 As we think about deals, we talked about prior challenges around interest rates and things like that, but what you're seeing emerge is in addition to the corporate balance sheets and others that are very strong, you're also seeing private equity take a different lens and really wanting to look at alternative structures, which oftentimes make for quicker deal transacting, I should say.
00:14:57:04 So, think about joint ventures, and I say joint ventures, not just with assets being contributed to NewCos from two private equity players, but with corporate players and former competitors that are now looking to potentially get some monetization of their asset through this NewCo piece. You've got private credit from private equity that was previously raised private credit going into the mix now and being deployed.
00:15:19:09 So, there's a lot of vehicles here that again, are in our favor as we think about volume and that will ultimately impact value as well moving forward. So, lots of uncertainty being, I don't want to say erased, but let's just say being more steady and being more consistent as we think about the markets. Hopefully, that answers your question though.
JENNY COLAPIETRO:
00:15:42:10 It does, and that's very helpful to hear relative to what's happening from a dynamics perspective and what to expect in 2025. Now, just to shift our focus to technology, AI and tech innovations are increasingly influencing healthcare deals. How do you guys see AI and other technologies impacting the volume and nature of healthcare transactions? Roel, do you want to start and give your perspective from a pharma and life sciences sector?
ROEL VAN DEN AKKER:
00:16:08:05 Yeah, great question, Jenny. Listen, I think AI is a topic that is getting a lot of focus and attention across the entirety of our economy and it's no different in the biopharmaceutical space. I think increasingly we're seeing use cases developed, it's particularly relevant I think in the clinical development field from a pharmaceutical’s perspective and also kind of in the commercial field.
00:16:31:05 I don't think we've seen a lot of deal-making directly correlated to AI in our sector, perhaps with a few exceptions, but I do expect as the use cases take shape as success is being evidenced in our sector, that M&A activity will quite quickly follow from there. So, that's probably how I would answer this, Jenny, from a biopharmaceutical’s perspective.
NICK DONKAR:
00:16:55:05 Yeah, and Roel, picking up on that as they think about AI and payer-provider land, the use cases are tremendous. I think it gets down to sort of two or three buckets, right? The first is around patient outcomes and care coordination. First and foremost, because healthcare is to serve and improve quality of care and patients.
00:17:15:08 I also think that the back-office automation of all of healthcare to help streamline processes and mundane stuff to free up both clinicians and others to provide more care as opposed to doing other things that are non-patient facing is going to be super critical. And so, we see there's a bucket of our work that we see around AI and the technology and the services around each of those areas.
00:17:44:00 Whether it's ambient listening to patient visits to reduce clinicians’ documentation of patients so they can spend more time with patients or otherwise, I think any technology that does that at a low cost that can handle volume will be an interesting potential add-on for our clients, whether they invest, whether they adopt, or whether they are experimenting with that.
00:18:08:10 All of AI, and by the way, let me just say this for the listeners, I am not an AI person from the standpoint of writing code, but I have seen the AI implications in our large health systems and our other providers and in our payers to where it significantly reduces cost of care. And I think anything that can do that to our population of providers and payers is going to be something that's worth investing in.
00:18:36:02 And those assets are, as they continue to unfold and evolve and improve, will continue to be quality assets in the marketplace that will have high adoption rates for all parties as we think through it.
JENNY COLAPIETRO:
00:18:49:07 So, as we wrap up on this insightful discussion, 2025 certainly sounds like it promises to be a pivotal year. Looking back at 2024 and ahead to 2025, do you want to leave some thoughts for our audience on what to keep an eye out for and the trends on the horizon. Roel?
ROEL VAN DEN AKKER:
00:19:07:10 Yeah, thank you, Jenny. Like I said, ‘24 was a healthy year from an M&A perspective in biopharmaceuticals and med-tech. The values were down a bit, volume was healthy. I think we're very optimistic going into 2025 for the reasons we went over. We have the LOE gaps that need to be addressed. We still have fantastic innovation in our sector, in great therapeutic areas, whether it's immunology, radiopharmaceuticals, oncology, there's just no shortage of fantastic innovation.
00:19:36:05 We think the larger players are going to address their portfolio. Growth will be a key focus for companies, into ‘25 and beyond. And as we have a more healthy and predictable macro environment, a more pro-business government, I think compared to what we may have had over the last few years, we do think it's going to be a very interesting year. What should our audience keep an eye on?
00:20:02:04 I think the competition for innovation is going to remain fierce. Corporate balance sheets are still healthy and biotech companies around clinical inflection points that show truly differentiated science that can make a difference in the lives of patients are going to command a premium. And a lot of parties are going to be competing to get their hands on that innovation.
00:20:25:02 So, I think naturally that will dictate for deal makers to be agile and ready, to be creative, to be able to respond quickly to changing circumstances, to think really dynamically about modeling and the environment in which they operate to truly get their hands on that fantastic science that is still out there. So, Jenny, I'm very optimistic for 25.
00:20:49:05 I love this sector. I continue to be amazed about the great things that all these companies deliver day in day out and the breakthroughs that get delivered. So hopefully, it'll be a very interesting 2025.
NICK DONKAR:
00:21:01:10 Yeah, Roel, you summed it up nicely. I almost could take med tech and pharma and replace it with payer-provider because the themes are going down the similar road. But Jenny, around ‘24, the word I used at the beginning of this discussion and the word I'll finish off with is resilience around 2024. Even with regulatory changes and a sort of slight decline in deal volume, I am super excited about where we're starting and launching from for ’25.
00:21:29:06 Based on all the factors we talked about earlier and it spans the gamut between creative investing to divesting of non-core assets, strategic reviews, interest rates, you name it. It's setting up for a great launch for 2025. And as we've said in the piece and as we talked through with others as we've been having these conversations both internally and externally, I think it's important to note that we remain really excited about the potential increase in deal activity driven by all the things that I just mentioned.
00:22:00:10 And then if you sprinkle on the tech-enabled piece to this with AI really intersecting with all of these transactions, it should be, we believe it should be a very, very nice 2025 from a volume perspective. I'll add in the points we referenced earlier, just to sort of, not to supercharge it, but just to further enhance that the pro-business and regulatory environment that we should be seeing based on campaign pledges and otherwise will only enhance this overall.
00:22:32:00 And I think that one of the elements that continue to excite me is the speed that Roel talked about around not only doing deals but the speed of which both for-profit and not-for-profit and private equity all look at their portfolios and do these reviews to determine what may or may not make sense as we think about supercharging growth, EPS concerns or otherwise where they have to make difficult decisions but do it relatively quickly.
00:22:59:07 I think that element in and of itself will continue to jumpstart the volume within our pipeline of transactions, which makes for an interesting discussion when you think about buy side and future business case models going down the path, the buy side element here is going to be pretty critical as everybody works together to get these transactions done.
00:23:21:00 And then last but not least, and again I'll put on my innovation hat. As you think about sub-sectors within health and payer-provider land that should see a lot of this, anything with a SAS-based component to it that has tech solutions or an AI sprinkled on it that is going to sort of take cost out of the system coupled with at the same time improving patient quality scores across the board.
00:23:46:02 That's going to be extremely important in ‘25. That coupled with the hold periods we talked about of assets coming back to market just to generate returns are going to be two critical themes that we really think through in 2025 for payer-provider land.
JENNY COLAPIETRO:
00:24:03:07 Great. Well, I certainly share in the excitement and optimism for the deals market in 2025. So, Nick and Roel, thank you both for joining us today and sharing your insights.
NICK DONKAR:
00:24:15:05 Thank you.
ROEL VAN DEN AKKER:
00:24:16:32 Thanks Jenny.
JENNY COLAPIETRO:
00:24:18:08 And we invite our listeners to read the Health Services and Pharma Deals 2025 Outlook report linked in the show notes and follow us on social media. For more on these topics and other health industry insights driven by policy, innovation, and care delivery changes, please subscribe to our podcast at pwc.com/us/nextinhealthpodcast. Until next time, this has been Next in health.
ANNOUNCER:
00:24:52:10 This podcast is brought to you by PwC, all rights Reserved. PwC refers to the US member firm, or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.
