Woman reviewing patients test results with doctors
Registrar reviewing patients test results with doctors

How will deals done now deliver what the health ecosystem needs next?

In the 2020 EY M&A Firepower report (pdf), we explore how life sciences companies can use dealmaking now to tackle what is coming next.

Life sciences mergers and acquisitions (M&A) activity reached US$357 billion in 2019, an all-time record. But outside the deal total, the 2019 dealmaking scene was, paradoxically, conventional.

In many cases, the companies that did announce deals adopted a familiar formula: acquire late-stage or marketed products or services that align with internal strategic therapy area priorities. Four megamergers, worth US$231 billion, helped drive the year’s overall deal total.

The desire to deepen therapy area focus continued to be a top deal driver in 2019, something we predicted in our 2019 EY M&A Firepower report. Indeed, in 20 of the 25 announced biopharma deals analyzed, the target’s products overlapped with the purchaser’s existing portfolio as measured by the therapy area or indication of the lead product.

Those deals also accounted for nearly 45% of the M&A dollars spent in 2019.

While record-setting deal totals might be a cause for celebration, there are also reasons for caution. The year’s outsized totals were primarily driven by pharmaceutical buyers, as medical technology and biotechnology companies remained on the M&A sidelines.

Says Peter Behner, EY Global Life Sciences Transactions Leader, “It’s not just what companies buy that matters, but also what they sell. Companies are divesting assets that are not core to growth – or may soon fall into that category.”

Moreover, 2019’s exceptional M&A sum wasn’t due to higher deal volumes, but to spending on fewer, more expensive deals as some would-be buyers questioned the high prices of acquisition targets after a yearslong bull market.

Reviewing 2019, the data suggest companies continue to prioritize a product-centric definition of innovation. The danger of this product-focused orientation is that companies could focus too heavily on developing therapies and devices that are undifferentiated relative to the competition.

Looking ahead to 2020

Despite concerns that an economic cool downturn might temper the broader M&A market, 2020 is shaping up to be another robust year for life sciences dealmaking. Indeed, EY modeling suggests portfolio optimization in just five therapeutic areas – oncology, immunology, infectious disease, cardiovascular disease and central nervous system disorders – could result in nearly US$300 billion in M&A.

We predict the following themes will be important in the year ahead:

  • Big pharma companies will continue to exit deprioritized therapy areas to focus not just on specific therapy areas but particular business models.
  • Medtech companies will be more active dealmakers, especially if target valuations moderate.
  • Big biotechs will step up their dealmaking as growth challenges become too acute to ignore.
  • M&A deal totals are highly unlikely to reach 2019 levels unless multiple megamergers, deals valued at more than US$40 billion (biopharma) or US$10 billion (medtech), are announced.

Over the past two decades, access to external innovation has become essential to life sciences companies’ growth, which will also drive further M&A activity in 2020.

With deal premiums still rich, companies must think beyond M&A to how they can use partnerships and other models of external innovation to more affordably build capabilities and avoid disruption. That’s especially true in the digital domain, where most companies are not investing sufficiently in the data-driven and digital technologies that could drive future value.

The current lack of emphasis on digital deals means many companies are under resourcing the capabilities that will help demonstrate real-world utility precisely when patient outcomes, clinical efficiency and cost measurements become even more central to the value proposition. As such, life sciences companies should prioritize partnerships with new or existing stakeholders across the health ecosystem.

Says Stefan Oelrich, Member of the Board of Management and Head of the Pharmaceuticals Division, Bayer AG, “Unless there are deep internal research capabilities already, the targets developed outside our organizations are generally more differentiated – and therefore more valuable – than the ones developed internally.”

The collaborations should move away from conventional ownership models to structures that apportion risk and reward based on how resources, including analytic skills and data, are shared between different parties.

Creating these partnerships requires a change in mindset. Companies will succeed not only by owning intellectual property, but because they have access to critical data that improve the health care experience, clinical decisions and/or outcomes.


To deliver what the health ecosystem needs next, life sciences companies must use dealmaking to focus business models, close near-term growth gaps and access future innovation using models that extend beyond M&A. Our 2020 EY M&A Firepower report (pdf) predicts what’s important for life sciences companies to know and do in the coming years.

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