How can you use dealmaking today to capture value from data tomorrow?

By Pamela Spence

EY Global Health Sciences and Wellness Industry Leader and Life Sciences Industry Leader

Ambassador for outcomes-based performance and healthy aging. Advocate for women.

5 minute read 7 Jan 2019

In the 2019 EY M&A Firepower report, EY explores the dealmaking strategies life sciences should prioritize to generate growth. 

Over the past three decades, life sciences companies have used their biological and chemical know-how to create significant value for themselves, their shareholders and most importantly patients.

As the health ecosystem evolves and patient, payer and provider stakeholders grow more demanding, will future value be created the same way? Or will data and analytics capabilities be essential for success?

In today’s fast-changing environment, it’s very likely that life sciences companies will need access to an array of medical and non-medical data to demonstrate value to their stakeholders.

The future of health care will see the right data used at the right time in the right way to enable more predictive, more efficient and more individualized patient care.
Kieran Murphy
President and CEO of GE Healthcare

This “datafication” of health care means traditional life sciences companies must examine how they position themselves for the future. Among the topics that should be at the top of the C-suite agenda are which kinds of deals – and which partners – position life sciences companies for maximum growth in 2019 and the future.

We believe that a necessary first step to sustainable growth is to focus on achieving dominance in fewer business and therapeutic areas through M&A and partnerships. Indeed, life sciences companies should prioritize smaller, mid-sized bolt-on deals and divestitures, which create scale in their strategic therapeutic areas while reducing portfolio complexity.

Longer term, partnering or acquiring digital capabilities will also be key. This is an area of growing interest to life sciences companies. However, in the near term, when the return on investment can be difficult to measure, let alone prove, companies are playing it safe, often prioritizing alliances rather than digital acquisitions. As alliances bear fruit, they could set the stage for more digital acquisitions in 2020 and beyond.

What we learned from 2018’s deals

As highlighted in the 2019 EY M&A Firepower report (pdf), life sciences companies in 2018 took a business as usual approach to dealmaking, buying assets in must win therapy areas and divesting non-core products or less strategic businesses. In aggregate, M&A activity was strong, but didn’t quite fulfill the expectations of market analysts, who predicted that new tax legislation would result in even more deal activity.



The value of life sciences M&A in 2018

The EY team’s analysis demonstrates that life sciences businesses with more focused portfolios are more likely to outperform their less focused counterparts. In a commercial environment of growing complexity, it will become increasingly difficult for companies with market shares in the low single digits to differentiate their products to important health customers unless their products provide a substantial improvement versus standard of care. As a result, companies that have already made their therapeutic bets will be better positioned to accelerate revenue growth than those that have not.

When we analyzed the operational and market performance of 25 leading biopharmas, the 10 more focused companies outperformed their 15 less focused counterparts on six different metrics.
Peter Behner
EY Global Life Sciences Transactions Leader

Implications for 2019

As we look ahead to 2019, we believe life sciences companies should consider three different dealmaking opportunities to position themselves for growth:

  1. Continue to seek scale in their strategic therapeutic areas through focused M&A and alliances
  2. Partner with other health care stakeholders to access and use data to improve outcomes
  3. Partner with, or acquire, digitally focused, data-centric companies to improve the efficiency and effectiveness of R&D to better differentiate marketed products with evidence

These are not mutually exclusive options. Indeed, focusing on fewer therapeutic areas is a necessary first step to creating agile, more competitive businesses that can build deeper relationships with key health stakeholders. Moreover, partnering with health care stakeholders will be more effective if life science companies choose to use dealmaking to bolster their data capabilities as well.

In reality, the most successful companies will be the ones that use all three strategies to create end-to-end capabilities and optimize revenue performance in the therapy areas where they hold dominant positions.

When setting their deal making strategies, life sciences companies should also take into account two different parameters: the degree of therapeutic focus associated with a company’s marketed products; and a company’s five-year projected compound annual growth rate. Where a company aligns on these two axes will determine its specific dealmaking imperatives.

  • Companies with low focus and low growth prospects: divest non-core assets and add scale in therapeutic areas through bolt-on deals
  • Companies with low focus and high growth: focus on divesting non-core assets and redeploying capital into their faster-growing businesses
  • Companies with high focus and low growth: solidify their market positions with bolt-on acquisitions and digitally-based partnerships
  • Companies with high focus and high growth prospects: invest for future growth; divestitures are less urgent
2019 life sciences deal making priorities inofgraph

Based on market forces, especially the need to create therapeutically focused businesses, we believe M&A activity will continue to be significant in the life sciences arena. Indeed, EY modeling suggests portfolio optimization in just four therapeutic areas – oncology, immunology, infectious disease and cardiovascular disease – could result in more than US$200 billion in M&A, no megamergers required.

This modeling, which uses conservative deal multiples, is based on 2017 revenues of companies with therapy area market shares of 3% or less, and excludes companies that are currently forecasted to exceed this revenue threshold in 2022.

Portfolio optimization


Potential M&A value from deals in four therapy areas

Divesting other deprioritized businesses and therapeutic areas (e.g. animal health, consumer health, women’s health and diagnostics) could liberate tens of billions of additional M&A. As a result, EY expects life sciences will continue to be an active space for acquisitions for the foreseeable future.

Get more insights into the state of Life Science M&A in the 2019 EY M&A Firepower report (pdf).


To position themselves for success, life sciences companies must accelerate their agendas on two fronts: the creation of focused business models and the acquisition of disruptive, digital capabilities.

About this article

By Pamela Spence

EY Global Health Sciences and Wellness Industry Leader and Life Sciences Industry Leader

Ambassador for outcomes-based performance and healthy aging. Advocate for women.