5 minute read 16 Jun 2020
An investor reacts as he monitors the share index in a stock market gallery

With cash on hand, life sciences companies seek M&A opportunities

By Peter Behner

EY Global Health Sciences and Wellness Strategy and Transactions Leader

Transformation leader in the development of new strategic direction for life sciences companies. Family focused. Loves fast cars, good wines and history books.

5 minute read 16 Jun 2020

To meet growth goals, life sciences executives are preparing now for M&A, even as the pandemic puts complex deals on hold.

The life sciences industry, like the rest of the global business community, is dealing with the global pandemic. COVID-19 has lowered the demand for in-person care, reduced health care provider bandwidth, disrupted global supply chains and internal business operations, and affected employee wellness.

But not every life sciences company has been affected the same way. Companies developing COVID-19 treatments, vaccines or tests have weathered the recent market volatility relatively unscathed. And as patients stockpiled medicines ahead of shelter-in-place orders, revenues for some biopharmas actually exceeded forecasts. (Biopharmas with portfolios comprising physician-administered drugs have not been as fortunate.) That said, the uncertainty of what could happen over the coming months means few companies have been willing to provide full-year guidance. 

By contrast, the medical device sector has been severely affected. Elective surgeries were either canceled as part of pandemic lockdowns or, where surgeries continued, patients were leery of going to the hospital. As the number of COVID-19 cases begins to stabilize in many countries, and governments begin to ease lockdown restrictions, elective procedures are resuming. When patients will become confident enough to undergo procedures will depend on numerous factors, including local infection rates and the complexity and necessity of the actual procedures. Thus, there will be some return to normal for medical device companies, but the recovery period is likely to be uneven and drawn out.

Overall, according to the results of the latest EY Global Capital Confidence Barometer (pdf), there is broad agreement from executives that the pandemic will reshape global economies, with 66% saying they expect COVID-19 to have a severe impact. However, they are less aligned about local implications, where 61% anticipate only a minor impact.

Although few life sciences executives expect a recession, many may find that recovery takes longer than anticipated

Despite the current situation, the market state does not appear as bad as one might have expected. While the S&P 500 is still around 10% lower than pre-crisis high (mid-February), the US Pharmaceutical Index and US Medtech Index are more or less identical to their pre-crisis highs, and the US Biotech Index is up considerably.

Although 52% of life sciences executives are bracing for a longer period of slower global economic activity extending into 2021, only 19% expect a sector recession in the near term.

Historically, life sciences companies have proved immune to recession as people still need health care, as well as drugs and devices, regardless of the economic situation. However, in the last century, we’ve never seen a public health pandemic spark a global recession.

Aside from medical devices and supplies used in elective procedures, the products most affected by the current pandemic are physician-administered drugs, or those that launched recently and don’t have strong penetration in the market. Companies have had to accelerate their digital sales capabilities since it’s not possible to educate physicians in face-to-face meetings. Also, given the massive delays or suspension of clinical trials due to the virus, we expect that the recovery phase could be more prolonged for life sciences companies than they may anticipate.

That said, life sciences executives are taking early steps to reevaluate operating models. A vast majority (92%) of those surveyed believe their global supply chains are no longer fit for purpose; 56% say they are taking steps to change their global supply chains. Meanwhile, 41% say they are looking to change the way they manage their workforce, and 37% indicate they are accelerating automation initiatives.

Operating models under review


of life sciences executives say they are taking steps to change their global supply chain.

Planned M&A activity focus is on bolt-on acquisitions and deals to bolster transitional capabilities

Some life sciences companies will turn to M&A to enact some of these changes. Fifty-eight percent say they plan to actively pursue M&A in the next 12 months. Of these, more than three-quarters say that their planned M&A activity will include bolt-on acquisitions or dealmaking for transitional capabilities.

Given the strong preference for smaller bolt-on deals (less than one-quarter of respondents indicated transformative M&A was a priority when surveyed), the value of life sciences M&A was never likely to eclipse the 2019 total – even before the new coronavirus emerged. However, deal activity has grown even quieter, in part because it’s difficult to establish the trust required to seal even a straightforward acquisition remotely. Since that is even more true for complex deals, we would be surprised to see a megamerger appear. That said, biopharmas and medtechs have huge cash reserves available for dealmaking if they want to deploy them.

M&A activity


of life sciences executives plan to actively pursue M&A in the next 12 months.

In contrast to other industries, life sciences M&A activity remained strong in past recessions. In the 2008–09 global financial crisis, the life sciences sector saw a string of megamergers about six months after the onset.

Certainly, major biopharmas and medtechs could find potential buying opportunities during this pandemic, especially as interest rates remain low and liquidity is high. At the same time, we expect companies to tread cautiously, as there is a desire to be aggressive but not predatory. Further, there is a growing sensitivity among some governments about foreign companies buying biopharma and medtech companies.

In lieu of M&A, companies are seeking alliances and product acquisitions that bolster growth needs and add therapeutic focus. Through 31 May 2020, alliance activity has already exceeded the volume observed in the first half of 2019.

Now is the time to sharpen data strategies and refine business models

The pandemic provides the burning platform for companies to sharpen their data strategies and refine their business models. Life sciences companies will want to continue to evaluate how demand elasticity will change for their therapeutic areas, and what contingencies need to be made for scheduled product launches.

At the same time, pharma companies keep scouring their medicinal archives for antiviral activity for COVID-19 using innovative combinations, while diagnostic companies are working through private-public partnerships to scale up rapid tests. Meanwhile, medical supply manufacturers and distributors are working overtime to fill the backlog of personal protective equipment and medical supplies that professionals still need and that health care organizations will want to have on hand in preparation for a potential second wave of the virus.

Next, life sciences companies will be looking for deals

Although valuations have bounced back from the initial onset of the pandemic, life sciences companies will be on the hunt for deals as they pursue bolt-on acquisitions of late-stage assets that were too expensive pre-pandemic.

Beyond, there are opportunities for change

Once things have normalized, there is every expectation that the new normal will look very different from before COVID-19 times. Some changes made by life sciences companies in response to the pandemic may be temporary; more will be permanent. These changes will create new opportunities for portfolio re-optimization, supply chain repatriation and digital transformation.

Leaders and laggards will be determined by how companies reimagine their strategy next and how they use transformative dealmaking to reposition themselves for renewed growth in the uncertain future beyond.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Peter Behner

EY Global Health Sciences and Wellness Strategy and Transactions Leader

Transformation leader in the development of new strategic direction for life sciences companies. Family focused. Loves fast cars, good wines and history books.