Press release

10 Jan 2022 New York, US

Firepower 2022: biopharmas shift from M&A to strategic partnerships to access external innovation

NEW YORK, 10 JANUARY 2022. Global life sciences mergers and acquisitions (M&A) activity totaled US$219b in 2021, up from US$159b in 2020, mainly driven by medtech (US$111b), according to the 10th edition of the annual EY M&A Firepower report.

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  • 2021 biopharma M&A value fell to US$108b globally
  • Only 9% of biopharma’s Firepower was deployed on M&A
  • Biopharma bolt-ons continue to dominate in a seller’s market

Global life sciences mergers and acquisitions (M&A) activity totaled US$219b in 2021, up from US$159b in 2020, mainly driven by medtech (US$111b), according to the 10th edition of the annual EY M&A Firepower report. Biopharma M&A activity in 2021 dropped to one of the lowest levels in a decade, totaling US$108b, down from US$128b in 2020 and US$261b in 2019. That doesn’t mean it wasn’t an active year for biopharma M&A: 2021 was a volume story. With no megadeal recorded, bolt-ons represented 88% of total deal volume. Biopharma companies closed the year with near-record levels of Firepower, which EY teams define as a company’s capacity to do M&A based on the strength of its balance sheet. Only 9% of biopharma’s Firepower was deployed on M&A in 2021, compared with 25% in 2019 and 12% in 2020.

A significant shift in capital allocation away from M&A

The EY report finds that despite signs of a market softening, sellers still have the advantage. In 2021, valuations for targets remained high and capital was still readily available. Last year (as of 30 November 2021), biopharmas raised more than US$80b in follow-on financing, venture funding and initial public offerings (IPOs), second only to the US$90b raised in 2020. This capital for early- and growth-stage companies was further augmented by the expanding role of special purpose acquisition companies (SPACs), a trend that accelerated in 2021.

The innovation deficit and partnering imperative

A looming patent cliff increases the urgency to acquire future innovation externally. The EY report suggests the compound annual growth rate for large biopharmas will drop precipitously in 2024, from 5.6% to 2.6%, significantly underperforming the expected 7.5% growth rate for the entire biopharma industry. The innovations driving biopharma’s growth over the next five years are expected to come from outside the group of established market leaders and the established classes of biopharmaceutical products that have historically driven growth.

Subin Baral, EY Global Life Sciences Deals Leader, says:

“For acquirers interested in ownership of scientifically de-risked, late-stage assets, there was little choice but to pay hefty premiums in 2021. In that context and given the need for external innovation to achieve future growth targets, strategic partnerships will be key for biopharmas. Though 2021 was a strong year for alliances and partnerships, investments have not gone far enough.”

EY research found that since the beginning of 2020, major biopharmas have deployed roughly 1.5 times more Firepower on alliances relative to M&A. In 2020, biopharmas signed 38 alliances with upfront deal values greater than US$100m and four greater than US$1b. In contrast, in 2021, companies prioritized smaller deals with lower upfront values.

To allocate capital sustainably in 2022, biopharmas should consider the following:

  • Divest to invest. Based on EY research, total shareholder returns are higher for companies that divest. Despite the current fragmentation in the industry, it’s also true that biopharmas have not done enough to proactively focus their business models. Indeed, the total disclosed value of divestitures in 2021 was only US$11b
  • Deploy more of their Firepower on strategic partnerships
  • Continue to favor bolt-on deals rather than risking megadeal expenditure for uncertain rewards.

The full EY report is available at


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About EY Firepower

Now in its 10th year, the EY Firepower Index measures companies’ capacity to fund transactions based on the strength of their balance sheets. It has multiple key inputs, including cash and equivalents, debt capacity including credit lines and market capitalization. In constructing the model, the following assumptions were made: first, a company will not acquire targets that exceed 50% of its existing market capitalization; second, the debt/equity ratio of the combined entity created by a transaction cannot exceed 30%.

While some life sciences companies have made acquisitions that go beyond these upper limits, the intent is to apply a uniform methodology to measure relative changes in firepower. EY Firepower measures capacity to conduct M&A transactions financed with cash or debt. It does not measure the ability to conduct stock-for-stock transactions. However, increases in a company’s stock price do boost its firepower under the EY Firepower’s formula. That is because equity enables companies to borrow more to finance transactions.

About EY Health Sciences and Wellness

The rise of the empowered consumer, coupled with technology advancements and the emergence of digitally focused entrants, is changing every aspect of health and care delivery. To retain relevancy in today’s digitally focused, data-infused ecosystem, all participants in health care today must rethink their business practices, including capital strategy, partnering and the creation of patient-centric operating models.

The EY Health Sciences and Wellness architecture brings together a worldwide network of 34,000 professionals to build data-centric approaches to customer engagement and improved outcomes. We help our clients deliver on their strategic goals; design optimized operating models; and form the right partnerships so they may thrive today and succeed in the health systems of tomorrow. We work across the ecosystem to understand the implications of today’s trends, proactively finding solutions to business issues and to seize the upside of disruption in this transformative age.