Pharmaceuticals & Biotech

Life sciences deal-making activity bucks the trend in 2020

By Michelle Choi, Christopher Shapiro, and Cody Powers

July 14, 2021 | Article | 7-minute read

Life sciences deal-making activity bucks the trend in 2020

The number of life sciences mergers, acquisitions and alliance deals typically declines following recessions and periods of market uncertainty, but those that are pursued tend to be high-value deals. Interestingly, the opposite pattern was observed in the life sciences industry in 2020: The volume of transactions spiked while deal value plummeted. This trend came on the heels of a decade-long period of declining deal volume and rising average deal value.


Early in the pandemic, we introduced a framework to assess how COVID-19 affected life sciences transaction activity and analyzed past trends to understand how they could help inform the current life sciences deal-making landscape. We outlined three potential outcomes resulting from the economic impact of COVID-19:

  • Overall transactions will slow until the virus is contained, at which point trends may revert to those experienced before the crisis
  • Deal-making activity will experience a temporary freeze as underlying factors are sufficient to keep the market afloat but with some degree of stagnation
  • The crisis will trigger a downturn in deal-making activity and a long recovery period for the industry

More than a year after lockdown, we’re still in the midst of a global pandemic, although the behavior of the market has shifted substantially over the course of the year.

The life sciences industry historically has been less affected by recessions compared with other industries, given the inelastic nature of healthcare and medicine. The 2020 market differed from that of the 2001 and 2008 recessions for two key reasons: the economic downturn was driven by a public health crisis and most of the workforce began working remotely across the globe.


Given the public health crisis, a portion of the deals and funding was directly related to COVID-19 vaccine and treatment manufacturers. The pandemic led to extraordinary collaboration across both public and private sectors for the funding, development, manufacturing and distribution of life-saving products across the globe. However, most deals weren’t directly related to COVID-19 products. In fact, only about 11% of the approximately 2,700 acquisition and alliance deals in 2020 were for COVID-19-related products.


Double clicking into 2020 quarterly data (figure 2) illustrates that while average deal value fell after the market crash in first-quarter 2020, the volume of non-COVID-19 deals steadily increased throughout 2020, even as infection rates continued to climb.

Assessing the deals by therapy area (figure 3) adds context to the nature of the deals. BioMedtracker data suggests that the pandemic renewed interest in infectious diseases, which was traditionally an unpopular therapy area given the low return for preventive products such as vaccines and antibiotics. There also was an increase in oncology deals, accelerating a trend that had already been in effect during the past two decades given the rise in both prevalence of and investment in cancer.

Layering on the average deal value helps illustrate where the average value drops most significantly. Average oncology deal value increased slightly from about $615 million in 2019 to $645 million in 2020 (orange line in figure 4), while that of infectious diseases plummeted from about $355 million in 2019 to $150 million in 2020 (red line in figure 4), driving down the overall average. This trend can be attributed to a larger proportion of 2020 deals that represent less expensive, early-stage assets, likely driven by the pandemic and the high level of uncertainty in the market.

Beyond the direct connection to COVID-19, widespread awareness of the biotechnology industry in general was facilitated by rapid vaccine and treatment development. This may have led to a halo effect, with greater receptivity toward investment in the life sciences. Both the direct and indirect effects of COVID-19 may have led to a strong year in terms of deal volume. Moreover, the high performance of the life sciences industry may have encouraged investors to focus on pharmaceutical and biotech companies during a year of high uncertainty.


Simultaneously, the transition to remote work may have temporarily reversed or halted the recent trend toward larger deals because companies are less likely to engage in megamergers when in-person interaction is limited. Smaller, safer transactions may be more attractive with reduced travel and fewer face-to-face meetings. That’s not to say that mega-deals are impossible: While total and average deal value fell in 2020 compared to 2019, the year closed with AstraZeneca’s agreement to acquire Alexion for $39 billion in December. AstraZeneca’s acquisition potentially may open more companies to the possibility of a megamerger, even in a remote working environment.

Life sciences funding activity today

Compared with other industries, the life sciences industry remained relatively intact during the market crash. In fact, the industry hit records in both public and private funding. The global biopharma industry far surpassed the $6.6 billion raised in initial public offerings (IPOs) in 2019 with $23 billion in 2020. Venture capital deals in the U.S. also hit a record of $27.8 billion in 2020.


Over the past decade, the biotech IPO market has continued to boom as a result of both increased innovation and greater funding. In many ways, COVID-19 may have expedited this trend, necessitating faster innovation given the urgency of the pandemic while providing increased funding and partnerships to ensure success. It also has reduced the logistical barriers to entry by allowing once cumbersome activities to become remote, such as the IPO roadshow.

A quarterly double-click into what transpired during 2020 (figure 6) reveals that while average IPO volume fell in the first quarter, it rose dramatically during the rest of the year. Conversely, average value increased dramatically in the first quarter, implying that the few IPOs that “made the cut” were of high value, and likely occurred prior to the market crash.

While some of the deals and IPOs can be attributed to companies and products directly related to the pandemic, fewer than 25% involved companies with direct links to COVID-19 products. Even after removing IPOs directly related to COVID-19 products, the trends still hold true. Similar to deal-making activity, funding for biotech IPOs may have benefited from the increased awareness of the industry as an indirect result of the pandemic.


Despite a relatively successful year for the life sciences industry, it helps to understand how it relates to the rest of the economy’s performance. The market cap of the entire biotech and life sciences industry, which includes about 1,000 publicly traded companies, is less than that of the top three technology companies (Microsoft, Apple and Amazon) combined. While valuations for Big Pharma may have been due to the successful commercialization of several COVID-19 vaccines and treatments, this context helps put into perspective how small changes in the macroeconomic landscape can have a relatively large impact on the industry.

Future perspectives

We may continue to see surges in M&A activity during the rest of 2021. While average deal value declined in 2020, the pharma industry reportedly raised $1.4 trillion in capital to be deployed against M&A activity for 2021. AstraZeneca’s purchase of Alexion may potentially have a catalyst effect, jumpstarting the trend back toward larger deals. Given the heavy capital investment in 2020, both deal volume and deal value likely will rise this year. The IPO boom also is likely to continue given the recent heavy focus on the biotech industry during the pandemic.


Analysts project life sciences deal activity to be around $250 to $275 billion in 2021, including several potential megamergers. Moreover, with several vaccines authorized and being distributed across the globe, in-person interactions soon may be revived, potentially shifting the pendulum back to a pre-COVID-19 era. 

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