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.