Deal-making activity in the rapidly growing health-care sector is expected to rebound in 2019, a law firm said in a report Monday, but heavier regulation and political uncertainty cloud the future of mergers and acquisitions.
Eli Lilly announced it was buying cancer drug developer Loxo Oncology for about $ 8 billion in cash. Just last week, Bristol-Myers Squibb said it would acquire cancer drug company Celgene in a cash deal valued at $ 74 billion.
Last year also saw a number of huge deals including Takeda Pharmaceutical of Japan’s takeover of London-listed Irish drug company Shire in a deal valued at $ 59 billion.
Stocks in the sector enjoyed a banner year in 2018, bucking the broader turmoil that shook equity markets. The S&P 500 health-care sector rose 4 percent last year, compared to the broader S&P 500 index which lost more than 6 percent during the same period.
Driving the increased M&A activity is intense competition for new drugs, according to Jane Hobson, health-care M&A partner at Baker McKenzie.
“As companies compete to add drugs to their portfolios, we’re seeing more early stage acquisitions and licensing, sometimes before proof of concept,” Hobson was quoted as saying in the report.
The report predicted that deal-making activity is likely to be the most intense in the United States and Asia, saying consumer spending power in those economies will push companies to seek new technologies.
In terms of public listings, the biotech sector has been helped by speedier approvals by the Food and Drug Administration in the U.S., as well as eased listing requirements for such companies in major deal-making center Hong Kong, the report said.
Hong Kong’s stock exchange in April last year implemented new rules that allow promising biotech companies to issue shares even before they record revenue or profits.
Chinese cancer drug developer BeiGene, a NASDAQ-listed biotech company, raised $ 903 million in a secondary listing in Hong Kong last year. It was the first company on the NASDAQ board to offer a secondary share flotation in the city.
Ringo Choi, managing partner at consultancy EY in Hong Kong, told CNBC separately that he sees a “great year globally” in 2019 for M&A and initial public offering activities, citing growing health awareness, technology-related health-care services and investor interest in genetic-based technologies for fighting cancer.
Some regions have experienced an explosion in deals.
Southeast Asia saw a 92 percent increase in health-care IPO volume last year, with $ 374 million raised in the region across 15 different listings, according to deal analytics firm Dealogic.
“Southeast Asia is a bright spot,” Romaine Jackson, head of Southeast Asia for Dealogic, told CNBC. “So you’ve seen the likes of some of the regional Southeast Asian banks having more of a specific sector focus on the health-care sector as it starts to become a bit more institutionalized.”
But looking beyond this year, Baker McKenzie’s report said that increased regulation and political uncertainty, including the likelihood of continued China-U.S. trade tensions and Brexit fallout, mean that 2020 may be a shaky year for deals.
Hideo Norikoshi, also a health-care M&A partner at Baker McKenzie, cited privacy protection in the form of Europe’s General Data Protection Regulation and other similar rules.
“These regulations will force companies to protect patients’ data, but at the same time, they need to collect data for the development of new drugs,” Norikoshi said. “Whether regulators tend to enforce protection or make data available to responsible parties, M&A activities will be impacted.”
Global health-care consultants Numerof and Associates also said rules and politics will be key factors for the industry this year.
“Regulators will continue tough enforcement, including coordinated global supply chain oversight and data requirements,” it said in its 2019 Global Pharma Outlook on its website.
“In the U.S., political and legislative uncertainty will continue to create risk and opportunity,” it said.