M&A wave in global healthcare poised to roll on

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Stenham Asset Management senior analyst Bruce Harington says the healthcare M&A wave shows no signs of abating

Global healthcare M&A reached $265bn (€233.3bn) last week, 77% higher than at the same point of 2014, which was the largest year on record for healthcare M&A by a huge distance.

The model of the healthcare industry has changed in recent years. Rather than conducting all R&D internally, the large pharmaceutical and biotech companies are now acquiring growth. The big companies are waiting until late stage drug development, which they then add to existing product portfolios. The large groups have the distribution to fully capitalise on breakthrough developments.

There has been an unprecedented amount of innovation in biotech in recent years and with continued innovation in important areas like immuno-oncology, the drug innovation pipeline shows no sign of slowing.

Fundamentals supporting the recent M&A wave are likely to continue for the medium term, particularly with the cheap financing available. We have also seen sharp gains in the share prices of both the acquirer and the company getting acquired. This fact has not been lost on CEOs in the sector, which should encourage further M&A.

This sector has had a strong run of performance over the last few years, but valuations are still reasonable. Its 10% premium to the general market is near its longer term historical average, but it is one of the best growth areas of the market in an environment of scarce overall growth.

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