Press release

13 Jan 2020 San Francisco, US

All-time M&A record for life sciences in 2019 as companies increased therapy area focus and closed growth gaps

SAN FRANCISCO, 13 JANUARY 2020. Life sciences mergers and acquisitions (M&A) activity, driven by pharmaceutical buyers, totaled an unprecedented US$357b in 2019 (as of 30 November), breaking the 2014 record.

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Related topics Mergers and acquisitions
  • 2019 life sciences dealmaking reaches all-time high with US$357b in deal value
  • Need to create therapeutically-focused businesses drove M&A totals in 2019
  • Portfolio optimization, acute growth gaps and undeployed firepower point to a robust 2020 for life sciences

Life sciences mergers and acquisitions (M&A) activity, driven by pharmaceutical buyers, totaled an unprecedented US$357b in 2019 (as of 30 November), breaking the 2014 record. Medical technology and biotechnology companies remained on the sidelines, showing life sciences companies did not use their firepower equally. This is according to the 2020 EY M&A Firepower report, launched today.

The EY report finds that acute growth gaps (difference between a company’s revenue growth and the overall industry’s sales expansion) and a volatile market created significant opportunities in 2019, including four megamergers worth a combined US$231b. The forces driving 2019 M&A activity will continue to push deals in 2020, as companies optimize portfolios to deepen therapy area focus, seek to increase near-term revenue and use novel deal structures to access innovation. Additionally, firepower for deals remains plentiful, especially for medtech and big biotech companies.

Key findings highlighted in this year’s EY M&A Firepower report:

  • Firepower is not used equally: Big pharma companies, which deployed 35% of their firepower in 2019, were responsible for last year’s historic data. High valuations discouraged big biotech and medtech companies, with only 10% and 16% of their respective firepower deployed. With US$1.4t firepower available in the market, many opportunities remain in 2020.
  • Deal volume drops as valuation gap reaches all-time high: Deal volume declined 14% year-over-year and is 29% below the average for the previous five years. Strong capital markets have increased the gap between what buyers expect and what sellers want. According to an EY survey conducted in September 2019, this valuation gap is at its highest level since 2018, according to 69% of respondents.
  • Focused growth continues to drive deals: Twenty-three biopharma companies were categorized based on therapeutic focus as measured by revenue generation. Of the 23 biopharma companies analyzed, the 10 more therapeutically focused organizations outperformed other organizations on 4 of 5 metrics (revenue growth, return on invested capital, EBITDA margin, average valuation). Less focused companies outperformed the focused cohort on total shareholder return.

Companies continued to prioritize a product-centric definition of innovation in 2019 and are not investing sufficiently in data-driven and digital technologies that could drive future value the report finds.

Pamela Spence, EY Global Health Sciences and Wellness Industry Leader, says:

“Companies will succeed not only by owning intellectual property, but because they have access to critical data and AI to analyze and drive insights from them. If acted upon, these insights can improve the health care experience, clinical decisions and outcomes.”

Implications for 2020

The report identifies a number of key industry trends likely to drive M&A in 2020 and beyond:

  • Medtech and big biotech companies are expected to be more active dealmakers if valuations of targets moderate and as growth gaps become more acute. Four of the five big biotechs in our data set have an acute future growth gap, in which the current growth gap is at least 10% of the company’s 2023 sales forecast.
  • Market volatility and the need for focus will create more opportunities for deals. Big pharma companies will continue to exit deprioritized therapy areas to focus on not just specific therapy areas but a particular business model. EY analysis of more than 100 small- and mid-cap biotechs shows that 60% of them are trading below their 12-month average share prices, creating buying opportunities for acquirers.
  • Beyond M&A, prioritizing alliances or product acquisitions will continue to create sustainable growth, in a “try-before-you-buy” strategy.
  • The cell and gene therapy space will continue to be a top area of investment as scientific advances continue to showcase the promise of these personalized therapies and there are more opportunities to build the large-scale manufacturing and supply chain expertise required to scale their delivery. M&A activity in that space shows an 880% increase in deal totals between 2014-2015 and 2018-2019, suggesting continued interest in 2020.

Peter Behner, EY Global Health Sciences and Wellness Transactions Leader, says:

“Market volatility and the desire to deepen therapeutic focus will continue to be deal catalysts in 2020. 2019 has been a ‘mega’ year driven by pharma buyers. In 2020, firepower remains plentiful and we expect to see more activity in medtech and big biotech, with megamergers coming from companies with acute growth gaps. Opportunities will also arise in the cell and gene therapy and immuno-oncology areas as valuations for startups continue to moderate and as small- and mid-cap biotechs keep trading below averages, becoming interesting targets for big pharma companies.”

The full report is available at


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About the EY Firepower

Now in its eighth year, the EY Firepower measures companies’ capacity to fund transactions based on the strength of their balance sheets. It has four key inputs: 1. Cash and equivalents; 2. Existing debt; 3. Debt capacity, including credit lines; and 4. 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.

In the report, companies were classified as big pharma, big biotech, specialty pharma/generics or medtech based on their size, geographic reach and product portfolio. Sixteen big pharma companies were analyzed for this report, while 13 specialty pharma/generics firms, 41 medtechs and 12 big biotechs were included.

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 28,000 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.