Two years ago, one of Elaine Riddell’s consulting clients approached her with a simple question: what U.S. firms with over $20 million in revenue could they pursue from an M&A perspective that were in data and analytics, market access or strategy consulting?
“Two months later, I came back to them and answered, ‘None,’” she recalled. “They looked at me and said, ‘What do you mean none?’”
The reason is that from mid-2019 to mid-2021, private equity (PE) was aggressively acquiring to the point where either a market-access firm was already bought by a PE-sponsored agency platform or owned by a strategic and therefore not available.
“That was eye-opening, that it had been happening a little bit under the radar,” said Riddell, managing director at boutique investment bank Oaklins Desilva+Phillips. “Unless you knew what questions to ask, you wouldn’t be aware.”
Riddell’s anecdote highlights a significant trend, that amidst a healthcare agency acquisition binge the last few years, market-access firms have risen to become perhaps the preeminent takeover targets.
They’re easily “one of the most sought-after subsegments of pharma commercialization,” as fellow investment bank Houlihan Lokey put it in a white paper released Thursday.
At its most basic level, market access is the process through which biopharma companies negotiate reimbursement rates with payers for their products, including a favorable market position and an equitable financial profile.
To do so, manufacturers need to develop value stories and analyses that help shape payers’ perception of the product before launch by leveraging clinical trial evidence. They must continue telling that story post-launch via electronic health records and claims data. The better a pharma company can corroborate its product’s value, the more likely the payer is to provide a positive coverage decision at an optimal price.
The need to negotiate with payers is pushing drugmakers to seek market-access consultancies that specialize in evidence communication, notes Houlihan Lokey.
The modern, outsourced market-access landscape consists of both full-service pharma commercialization platforms that maintain a market-access offering and consultancies that bill themselves as experts in the field. Notwithstanding their scarcity, several more of these smaller companies were rolled up by PE-backed buyers in 2022, although dealmaking has slowed this year.
Additionally, among those that have only recently become noisy on the deal-making front, the acquirers have been newer names. Mid-sized networks and larger agencies – from Fishawack Health to Fingerpaint Group to Lumanity – have bulked up, reconfiguring the landscape.
These platforms aren’t content with just one. Some have bolted on multiple market-access shops, all with related expertise. Fingerpaint Group scooped up strategic market-access marketing firm The MYND Group this year, following the purchase of market-access consultancy 1798 in 2020.
Lumanity, with help from PE firm Arsenal Capital Partners, embarked on a deal spree that saw it roll up six firms between 2020 and 2022, including health economics and outcomes research (HEOR) consultancy BresMed, med affairs shop Cello Health, payer communications/market access firm Cyan Health and Zipher Medical Affairs.
Deals have largely followed the pattern of “big platforms doing add-ons,” observed Tom O’Connor, managing director and co-head of healthcare investment banking for Canaccord Genuity.
“Pharma commercialization is on everybody’s hit list because the money coming out of pharma with its long development cycle hasn’t changed,” said O’Connor. “You’ve had 30 to 50 deals happen during the last three years and everyone’s got a big platform so they’re looking to do tuck-in acquisitions.”
Canaccord Genuity tallied 17 market-access M&A deals last year, along with 33 in medical education, as buyers looked to keep healthcare professionals and patients engaged and help clients navigate the complex payer landscape.
These assets, or their related disciplines, have often commanded high valuations. For instance, Novo Holdings bought Medical Knowledge Group, which provides medical affairs and other services to drug companies, last year for a reported 20.5 times 2021 EBITDA. Thermo Fisher Scientific acquired CorEvitas, a real-world evidence provider, from Audax Private Equity for $912 million last month, or roughly 30 times EBITDA.
“Market access is going to get a premium valuation just based on scarcity value in a competitive process,” said O’Connor.
In other examples, global consulting firm ADVI Health, a scaled commercialization and market-access platform, sold itself to PE firm Sheridan Capital Partners last December.
Silversmith Capital Partners’ Genesis Research acquired Market Access Transformation last year, complementing Genesis’ HEOR offering. Meanwhile, Fishawack Health bought well-regarded access shop Avalere Health in June 2022, with assistance from principal investor Bridgepoint, following its acquisition of HEOR consultancy Policy Analysis.
“Everybody wants to have an end-to-end solution,” said O’Connor. “They all want to branch out into more niches along the commercialization lifecycle.”
This phenomenon is largely thanks to a mix of research and development, regulatory and marketing trends – all of which reinforce its essential nature to the pharma industry – that market-access expertise has become perhaps that most coveted of niches.
Macro trends range from the ongoing specialization of medicine to the ever-smaller patient populations for targeted therapies, which has led to market-access challenges regarding pricing and reimbursement.
“Especially as you narrow in a little bit more on some of the more complex therapies — therapeutic categories around cell and gene, rare and orphan — pricing is particularly even more important in those areas,” said Mark Martin, managing director at Houlihan Lokey
Higher-priced specialty drugs typically result in more scrutiny from payers and drive the need for rigorous, evidenced-based analysis that highlights the long-term value of the product. Through value-based contracting, manufacturers have tried to showcase the value of their products through, say, reduced hospitalizations, prescription lift and positive clinical data to increase the likelihood of favorable reimbursement decisions and access.
Running in parallel is the notion of launch success. Without access, companies won’t get the volume they expect from their drug. Riddell cites two statistics, one from Deloitte that 36% of new drugs fail to meet market expectations and another from McKinsey that puts the figure closer to 40%.
“Why is that?” she asked. “Because the manufacturer did not understand the market and the competitive dynamics didn’t fully understand the unmet need. Was the gap something that somebody would pay to fill effectively?”
In other words, companies need to ensure they’re bringing the right product to market. That starts to explain why strategy consulting firms are being acquired left and right. Still, what may have supercharged the acquisitive streak is demand from so-called first-time launchers.
Riddell points out that for two-thirds of pharma’s drug pipeline, the developer is an emerging biopharma, or a company with under $500 million in revenue and $200 million in R&D spend.
Historically, emerging biopharmas tended to partner with Big Pharma companies to take their drugs to market. Instead, according to a McKinsey analysis, in more than half of cases, founders are choosing to launch independently.
“A meaningful number of firms that are launching their own product have never launched before and didn’t have the infrastructure,” she said. “So, that’s what was driving all of this investment by private equity to build these outsourced platforms – it’s to service emerging biopharma, as well.”
Houlihan Lokey cites a few other drivers of successful market-access strategy. One involves the increasing import of real-world evidence (RWE), which has become a supplement to market-access communications by providing real-time insights into the post-launch performance of products.
Another is payer and regulator requirements for patient perspectives and patient-reported outcomes, through which the patient has become an active stakeholder in the market-access process.
“There’s a blurring of the lines,” observed Riddell, between classic pricing and reimbursement, understanding the market gap, proving your product satisfies that gap through RWE and then medical communications.
The real opportunities, she said, lie at the intersection between those disciplines. The more powerful and well-honed that overlap is, the greater the value.
“It’s these people who can take this complex science, complex market dynamic and communicate it simply to the payer, to the physician, to the patient that it is prized,” she said. “It justifies a platform as opposed to a set of silos. Integration is going to become a real topic.”
On the regulatory front, last year’s passage of the Inflation Reduction Act (IRA), the Biden administration’s signature drug-pricing law, could also lead to more volatility.
For the first time, the legislation allows Medicare to negotiate prices on a small number of products. While three different drugmakers along with the pharma industry’s main lobbying group have already filed separate lawsuits attacking it, the IRA is expected to greatly impact the current drug pricing approach.
The law’s penalty compelling manufacturers to pay rebates if price hikes outpace inflation will likely prompt companies to gather more proof of their drug’s positive impact on health outcomes prior to launch. Pressure to set the right price initially – rather than rely on subsequent price increases – should also spur demand for market-access consultants.
The IRA is allowing these firms to “play a much larger role than they maybe would have three or five years ago, and it’s because of that need for precision upfront,” explained Martin.
Deal volume has cooled of late, down approximately 50% from 2021. The cost of capital is high, so the PE firms have decided to wait. In the meantime, a lot of entrepreneurs are building up their businesses.
“They realize what they own and they’re growing to get to a scale,” said O’Connor. “A lot of them are trying to get to, say, $20 million in revenue and 5-to-6 times EBITDA and then sell some of it.”
While there may be few market-access deals to be had now, Canaccord Genuity and others predict the market will heat up later this year as groups look to monetize their investments when the environment is more conducive to an exit.
“You’ll see some deals that have transacted three-and-a-half, four years ago come back out to market as they’ve already had a platform, done lots of acquisitions and now it’s big,” said O’Connor. “It could be a big win for the private equity sponsor.”
