Insight

2022 Healthcare and life sciences investment outlook video

The KPMG 2022 Healthcare and Life Sciences Investment Outlook video provides insights to investors on nine industry subsectors.

Kristin C. Pothier

Kristin C. Pothier

Global and National Leader, HCLS Strategy, KPMG LLP

+1 617 549 2779

Steve Sapletal

Steve Sapletal

Principal, National Life Sciences Advisory Leader, KPMG US

+1 612-708-2556

Brett Glover

Brett Glover

National Financial Due Diligence and Deal Advisory Strategy Leader, Healthcare and Life Sciences, KPMG US

+1 214-840-8579

The KPMG 2022 Healthcare and Life Sciences Investment Outlook video provides insights to investors on nine industry subsectors and incorporates findings from a nationwide survey to illuminate how competition, shifting demand, and innovation -- as well as the pandemic and an evolving regulatory environment -- may impact investment decisions in the year ahead. 

Although the pandemic has challenged the healthcare and life sciences industries in many ways, the disruption has also created some lasting innovations: Managing patient care during the pandemic spurred the uptake of telehealth as a consumer-centric treatment modality and recognition of how value-based care elevates patient outcomes. And the response to the virus accelerated advances in science, e.g., mRNA vaccines and monoclonal antibody treatments, that have set new expectations for how quickly new molecules and biologics can go from lab to patient use.

Despite a landmark year for investment in 2021, 70 percent of investors who responded to our survey indicate that they are ready to accelerate their active deal pace in 2022, and more than half of PE investors will do at least 10 percent more deals this year. With biopharma, healthcare IT, medical devices, and hospitals leading the way, we expect to see targeted, thoughtful investment in high-value targets across all the subsectors we assess in this paper.

2022 Healthcare & Life Sciences Investment Outlook Video

Our 2022 Healthcare and Life Sciences Investment Outlook video offers a look into industry innovations with the great investor interest across the various sub sectors in Healthcare and Life Sciences.

Video transcript

Steve:

  • Very excited today to officially launch our annual investment outlook for 2022.
  • This paper is based on our deep Global insights and interviews of more than 300 executives spanning the Healthcare and Life Sciences combined industry.
  • We are remain very bullish about HCLS M&A in 2022 with survey respondents citing continued low cost of capital and internal pressure to deploy capital.
  • 70% of respondents say they expect to increase their M&A activity in 2022.
  • More than half of PE investors say they will do at least 10 percent more deals.
  • We note that the pandemic will continue to create uncertainty and disruption coupled with strong competition for limited - high-value, innovative targets
  • In our investment outlook, we looked at nine sectors and with me today, I have Kristin Pothier, our Global HCLS DAS leader and Brett Glover, our HC Deal Advisory leader and will be asking them to provide their perspectives on Life Sciences and healthcare sectors
  • Kristin, in thinking about Life Sciences - how are you seeing the Biopharma segment playing out in 2022?

Kristin:

  • Glad to be here, yes, Steve as you indicated there is strong competition for a limited number of high-value biopharma targets in 2022. Our query of top executives worldwide highlight that the majority of targets will be companies or assets that are early-stage, highly innovative. This is not to say late-stage or commercial asset deals won’t happen, they will, but generally speaking it appears competition for innovation has pushed acquirers to look at more opportunities in Phase I or earlier. It has just become harder to find high quality late stage assets, unless you’re going to acquire a much more mature, larger company.

Steve:

  • Based on the very active market, are you seeing new type of deal structures and expect to see anything new in 2022?

Kristin:

  • A mix of Acquisitions, strategic partnerships, and creative equity or financing deals with milestones. It remains unlikely we’ll see a mega-merger in 2022 of the likes of another BMS-Celgene or AbbVie-Allergan.
  • In terms of the disease types, the focus will continue in oncology, immunology, neurology, and rare disease. Cell and gene therapy which has generated a great deal of interest and has been an area of intense innovation and every major global pharmaceutical company is interested in acquiring some aspects of this promising area. That said, in 2020 and 2021 we saw some of the bigger bets big pharma made in this space face some safety issues with key assets they acquired. We think this will push pharma to re-think its deal structures. To find ways to de-risk these investments, they are likely to use even more creative equity deal structures versus straight forward acquisitions. There is just too much uncertainty still on the overall safety of these technologies.

Steve:

  • Great to hear that Kristin – What headwinds do you think we should consider?

Kristin:

  • I would consider two things: there are integration challenges that have only increased due to the complexities surrounding talent retention for these innovative targets - - it’s striking that right balance between risk & controls to not stifle that entrepreneurship that leads to innovation. The other potential headwind is around FTC scrutiny on biopharma deals and drug pricing. We anticipate the FTC to become more restrictive on what types of deals they allow.

Steve:

  • You talked about the various disease types and innovation happening, if we pivot to diagnostic manufactures – what are we seeing there?

Kristin:

  • Diagnostics and lab has had another phenomenal year due to the need to supply the world with COVID tests, reagents, and services; and then using that cash, for some companies several Billon additional, to fund other innovative acquisitions Deal volume outpaced 2020 by more than 60 percent. In 2022, nearly 90% of our survey respondents say they expect the number of deals in the subsector to increase. Half of respondents say the most likely type of deals will be small strategic tuck-ins and strategic partnerships (35 percent) with continued interest in liquid biopsy, molecular testing and point of care. Another strengthening trend is the convergence of ecosystems, with diagnostics manufacturers buying labs and vice versa, and the subsector all rising to better serve pharma through diagnostic based biopharma services.

Steve:

  • Thanks Kristin, Let’s quickly discuss healthcare. Brett, what are you seeing in Healthcare?

Brett:

  • Thanks, Steve, and good to be here. The good news is that we expect the Healthcare MA& market to remain very active. We expect the larger health systems to continue to fare well, while smaller hospitals will continue to face significant headwinds and the pressure to merge will only intensify.
    • vertical integrations will continue in 2022, as hospitals continue to acquire and/or partner with physician practices, ambulatory surgery centers, urgent care, post acute and behavioral.
    • we expect partnerships, joint operating agreements, and service-line joint ventures to remain attractive as the speed to realize value is greater than M&A.
  • Some additional considerations include:
    • In the early part of the year, we do not see any indicators of relief on multiples. Private equity will continue to pay high multiples and continue to have pressure to quickly implement their value creation strategies.
    • In certain sectors, providers will continue to favor partnerships due to high valuations and capital required to compete with private equity in bids for higher-priced healthcare assets.
    • Highly attractive areas for investing: Behavioral Health, Risk Bearing Providers and of course HCIT.

Steve: 

  • We discussed LS headwinds, what are you seeing in HC – what headwinds can we expect in HC?

Brett:

  • The top operational issues are inflation and labor pressure. Between Omicron, labor shortages and wage issues we expect pressure on organic growth in certain sectors.

Steve:

  • Healthcare has changed for all of us during this pandemic and how we get our services delivered -- What can we expect in Healthcare IT & telehealth?

Brett:

  • Three-quarters of survey respondents expect higher valuations in 2022
  • Survey respondents ranked telehealth, electronic health records, and clinical workflow solutions as the most attractive for investment in the next 12 to 24 months, in part because these tools can ease the strain of staffing shortages.

Steve:

  • Thanks Kristin and Brett for your perspectives. Again we are bullish about Healthcare & Life Sciences M&A in 2022. We encourage you to read our LS and HC outlook paper.
Investing in a future transformed by the pandemic
2022 Healthcare and Life Sciences Investment Outlook

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