Why Asia Will Be Focus of Mega Healthcare Deals This Year

The global healthcare transactions is expected to reach US$ 331 billion in 2019

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Amid political uncertainty and enforcement of new regulations, dealmaking in the healthcare sector saw a drop of five per cent last year, to USD 308 billion. But the new year will set a new benchmark, with global healthcare deals expected to rise seven per cent to $331 billion.

What’s more, Asia will be the focus of several healthcare megadeals in 2019, according to the Global Transactions Forecast 2019 (Healthcare) report by the multinational law firm Baker McKenzie.

Early start

The year has already started with a bang after the announcement of American pharmaceutical company Bristol-Myers Squibb acquiring biotechnology company Celgene for USD 74 billion. More recently, Takeda, Asia’s largest pharmaceutical company and one of the world’s top 10 largest pharmaceutical companies by revenue, acquired Ireland’s drug company Shire for $58 billion.

Jane Hobson, healthcare M&A (mergers and acquisitions) partner at Baker McKenzie, says besides divesting, companies also want to grow their product pipeline, as competition for the next innovative drug becomes fierce.

“As companies compete to add drugs to their portfolios, we’re seeing more early stage acquisitions and licensing, sometimes before proof of concept,” she says, adding, “Also, a lot of the medical device companies are shifting their business models so that they don’t just offer a medical device. Instead, they offer a solution or patient support around it, or they offer to run a service for a hospital. Many manufacturers are having to buy in that expertise.”

The Asia angle

The report notes that companies will be most active in Asia, besides the US, thanks to populations with relatively disposable incomes and local businesses trying to attract new technology investments.

Alan Zoccolillo, healthcare M&A partner at Baker McKenzie, sheds light: “We’re seeing increased vertical integration where data, logistics and other potential areas for efficiencies can be found and help provide growth opportunities for companies where growth within their traditional sector is constrained.”

The US Food and Drug Administration’s (FDA’s) boost to IPO activity to speed up approvals and the new rules on the Hong Kong Stock Exchange (HKSE) also have a role to play in making it easier for biotechs to list, the report says. Ashok Lalwani, healthcare IPO partner at Baker McKenzie, says, “The HKSE now allows biotech companies that aren’t yet profitable or without revenue to list, provided their expected market capitalization is more than HKD 1.5 billion. In comparison, those listed on China’s main exchanges – Shanghai and Shenzhen – must prove three consecutive years of profit and revenue before listing. The new rules mean in Hong Kong the number of biotech companies coming to the market in the early stages of research and development and with no profit or turnover is expected to grow.”

Looking ahead

Hideo Norikoshi, healthcare M&A partner from the law firm, however, warns that political uncertainty and regulations will definitely take their toll on deal activity.

“New investment and cross-border investment will be affected in the years to come, particularly between the US and China as tensions over trade continue. The UK’s withdrawal from the EU also leaves companies feeling uncertain, and this will further dampen deal activity in the UK and elsewhere.” Hideo adds, “Political challenges aside, data protection may be a challenge for a lot of healthcare players thanks to GDPR and other similar measures. 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. Whether regulators tend to enforce protection or make data available to responsible parties, M&A activities will be impacted.”