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How ecosystem participation drives more value for life sciences deals

The need for growth will keep dealmaking firmly on the C-suite agenda, but the balance is shifting away from large M&A to partnerships.

In brief

  • The dealmaking trends of 2020 continued in 2021, with an emphasis on smaller bolt-on transactions.
  • In 2022, patent expirations and the need to access new modalities will increase the pressure on biopharmas to use M&A and partnerships to obtain future revenue.
  • Marketing dynamics mean buyers will remain selective, as the dealmaking emphasis shifts to alliances and strategic partnerships.

In 2021, the biopharma industry’s M&A Firepower, defined as the capacity to conduct acquisitions based on the strength of the balance sheet, reached nearly US$1.2 trillion for the first time since 2014. But for the second year in a row, that capacity did not translate into equally rich deal values. Absent a last-minute megamerger, the total value of biopharma M&A in 2021 will be one of the lowest on record, and the year’s largest deal priced at just US$12 billion.



A company’s capacity to fund transactions based on the strength of its balance sheet. It has multiple inputs: cash and equivalents, existing debt and market capitalization

Deployed Firepower

The ratio of capital spent on M&A and/or alliances relative to available Firepower

Growth gap

The difference in US dollars of a biopharma’s sales growth relative to overall drug market sales


Acquisitions with valuations of roughly US$40 billion (biopharma) and US$10 billion (MedTech)


Small to medium-sized acquisitions that account for less than 25% of the buyer’s market capitalization

Financial deal

Transactions involving a financial buyer such as private equity

Transformative deal

Transaction in which the deal value is greater than 50% of the acquirer’s market capitalization at the time of purchase

That doesn’t mean 2021 was a slow year for M&A. Biopharma deal volume increased year-on-year, as biopharma majors opted for smaller bolt-ons rather than transformative M&A opportunities. In all, bolt‐on deals represented 88% of biopharma deal volume.

MedTechs, meanwhile, continued to use acquisitions to accelerate new business models that allow seamless delivery of care whether it is offered at the home, the physician’s office or the hospital. Indeed, of the US$219 billion spent on life sciences deals in 2021, 51% were MedTech acquisitions.

Proceeding with caution

When it comes to acquisitions, biopharma companies had reasons to be cautious. For most of 2021, it was a seller’s market: valuations of target companies remained high, and capital was readily available. As a result, acquisition targets didn’t need to rely on M&A to fund their growth ambitions. The upshot for biopharma dealmakers? Acquirers interested in outright ownership of scientifically de-risked assets had little choice but to pay hefty premiums.

At the same time, major biopharma companies don’t have the luxury of waiting for a more temperate M&A climate. There is a scientific renaissance currently blooming. To stay competitive, bigger biopharma companies need to be aggressive in their pursuit of external innovation. Simply put, they need to transact if they want to transform their businesses.

But as became clear in 2021, those transactions won’t necessarily be acquisitions. Indeed, as data in the 2022 EY M&A Firepower report (pdf) demonstrates, companies continued to shift their capital allocation away from M&A in favor of alliances and strategic partnerships.

Firepower deployment

Partnerships are an increasingly important answer to how to allocate capital for future innovation.

The partnering imperative

Since the beginning of 2020, major biopharmas have deployed 1.5 times more Firepower on alliances relative to M&A. As companies seek to allocate their capital sustainably in 2022, it will be even more important that they take advantage of the potential benefits of alliances, including broader, more strategic partnerships, to access new talent and innovation.

Of course, alliances are another means to offset risk, giving both deal parties an opportunity to mutually demonstrate value and build trust. "To increase the chances of success, companies must have the relevant expertise and a strong collaboration culture," says Belén Garijo, Chair of the Executive Board and CEO, Merck KGaA, headquartered in Darmstadt, Germany. "That is why we rigorously assess the cultural fit of organizations we partner with as part of our due diligence process," she says.

EY research suggests that alliances offer significant value to biopharmas: the historical return on investment (ROI) for alliances is 33% higher than for M&A. And anecdotally, there may be no better example of the power of alliances than the race to market COVID-19 vaccines. Historically, the vaccine market has been dominated by the few companies that have a depth of relevant knowledge and infrastructure. Yet companies that looked beyond these core vaccine capabilities to leverage the potential of nascent mRNA technology, primarily via partnering, have been the most successful.

Of course, partnering effectively comes with its own challenges: with low upfronts, big companies may err on the side of hedging risk, and not give their smaller partner the support needed to reach the next inflection point. Smaller companies must be resourced sufficiently to make progress and operate as a genuine innovation engine, without simply becoming a captive of the larger company.

Interestingly, EY research shows that on a number of metrics, biopharma companies in 2021 prioritized smaller alliances with lower upfront payments. In contrast to 2020, when there were more than 38 deals with greater than US$100 million upfront, through 30 November 2021, there were only 31. Average upfront payments fell nearly US$30 million year-on-year. 

Looking ahead to 2022

As biopharmas look ahead to the coming year, future patent expirations and the speed of scientific progress will keep both M&A and alliances firmly on the agenda. One key area of investment: new modalities, such as cell and gene therapies, antibody drug conjugates and RNA- and DNA-based medicines. Although leading biopharmas have made a push to bring such capabilities in house, research suggests that they are the minority of current pipelines. This is especially true in oncology. 

In 2022, high deal premiums will continue to be an obstacle for big biopharma buyers. Late-stage or marketed assets with strong clinical data will continue to command high prices, particularly in competitive therapy areas such as oncology. Yet some of the largest companies have significant cash resources to deploy for M&A and there could be increasing pressure to use it to establish beachheads. Such acquisitions would reverse the declining trend for biopharma deal value witnessed in the past two years. 

However, a majority of companies won’t have the capital — or the desire — to buy leadership positions. As a result, alliances will be the primary priority.

For these reasons, the strategies deployed in 2022 will be a continuation of those used in 2021. Companies will:

  1. Favor bolt-on deals rather than risking megadeal spending for uncertain rewards
  2. Seek divestments to free up capital to execute M&A
  3. Prioritize partnering and strategic collaborations, including strategic relationships that more equably share risk and reward between deal parties

In such an environment, M&A may find itself playing a supporting role, as more biopharmas pursue smarter, earlier, strategic partnering to achieve their growth goals.


With ample Firepower to do deals, biopharma companies will focus on bolt-on deals and partnering, while seeking divestments to free up capital for growth objectives.

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