Biopharma companies have relied heavily on M&A for growth, with more than 60% of their marketed assets coming through acquisitions over the past 15 years.1 However, when we explored those patterns, multiple factors were revealed to be eroding the sustainability of an inorganic growth strategy:
Three factors are causing the shift:
Rising costs of inorganic growth: For M&A deals valued at more than $500M, the average takeout premium in biopharma has grown from 51% in 2018 to roughly 71% in 2021.2 This is in part due to the increasing amount of venture capital flowing to biotechs with total investments in biotech nearly doubling in 2021 compared to 2019.3 In Q1 2022, public markets slowed with biotech performance dropping and capital raised decreasing. Nevertheless, private markets remain healthy with total VC investment in Q1 2022 being the second-largest quarter of all time (after Q1 2021) for biotech-venture capital funding.4
Biotech going to market: Smaller biotech companies were responsible for ~55% of all drugs to brought to market between 2017 and 2021— further fueling the escalating deal premiums.
Increasing profitability pressures: Biopharma’s are experiencing margin declines in almost every therapeutic area. In fact, this decline is expected to be over 6% on average, with anti-infectives expected to experience the largest decline at 11.6%.5
Four growth pathways
Through our analysis, we identified four growth pathways for biopharma companies. By understanding these pathways, we can better anticipate trends toward innovation and success:
Biopharma’s traditional way of bolstering pipeline assets by bolting on late-stage acquisitions.
Early-stage asset acquisitions—often with a biotechnology platform (bio-platform)—that enable companies to expand their pipeline across therapeutic areas.
Acquisition of know-how and capabilities to innovate faster or reach customers in a new way i.e., through analytics, AI, new devices, etc.
Geographic expansion or vertical integration i.e., growth markets, control supply, or points of sales.
of all deals over the past 10 years were Builder and Architect pathways, but the traditional Builder pathways approach is becoming less appealing.
increase in Architect pathways over the past five years compared to the previous five year period.
of the total volume of M&A deals focus on Ecosystem pathways.
of deals focus on geographic expansion or vertical integration (Controller pathways).
Deals announced early in 2022 support our predictions. Sanofi’s collaboration with Exscientia, an AI-drug discovery company, is an example of the Ecosystem pathway whereas Pfizer’s with Beam Therapeutics is an example of the Architect pathway.
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Where does the analysis take us?
We identified three key actions companies should take in this new era of innovation and growth:
Combine biotechnology platforms (bio-platforms) and capabilities to create value
Different bio-platforms can and should help each other evolve in new directions and create value together. Ecosystem growth pathways that provide access to computational power, data, and advanced analytics, as well as digital and automation technologies, help power bio-platforms to develop treatments faster.
Become a “cross-platform” organization and culture
As companies develop additional assets using bio-platforms, they will learn how to develop these assets faster and more efficiently. This learning can and should then be applied to other bio-platforms and various therapeutic areas to increase speed.
Create a novel science and technology (S&T) incubator that reports to C-suite
If executed well, the bio-platform strategy will lead to a proliferation of assets in various therapeutic areas (TAs). It is not efficient to keep building new TA verticals and therefore biopharma will need to externally source experts, skill sets, capabilities, and relationships on demand.
With the pace of innovation accelerating and the expectation of companies to keep pace, the future of growth and M&A is set to transform. From shifting trends in partnerships to new models of thinking required to support acquisitions, we are deeply entrenched in a period of transformation for the biopharma industry—a transformation that will have a lasting impact on the future of treatments and patient outcomes.
1 Accenture Research leveraging evaluate Pharma data. March 2022.
4 Accenture Research leveraging Evaluate pharma data. April 2022.
5 New Science: A new economic reality for innovation and growth. Accenture 2021.