The biopharma industry’s deal-a-palooza, better known as the J.P. Morgan Healthcare Conference, has kicked off in San Francisco. It's likely no coincidence that Monday has already featured a high-dollar acquisition announcement by Johnson & Johnson.
It could be a sign of more M&A to come in the biopharma world.
While there was plenty of M&A activity in 2024, recent deals have been “smaller, smarter and more agile” than those in years past, according to EY’s Firepower report: life sciences dealmaking—trends in 2025.
In its own recent M&A report, PwC predicted that falling interest rates and more post-election certainty about the macroeconomic landscape will help spur larger deals in 2025.
At last year’s JPM conference, the industry was coming off a blitz of deals—six in the previous quarter for at least $4 billion, topping out with Bristol Myers Squibb’s $14 billion buyout of Karuna Therapeutics.
Still to come in the first quarter of 2024 were four more acquisitions worth at least $2.5 billion, topped off by Novo Nordisk’s $16.5 billion purchase of Catalent.
But since then, most of the M&A activity has been focused on earlier-stage, longer-range innovative assets.
While there were roughly the same number of transactions in 2024 as in the previous year, their aggregate value dropped 41%, from $222 billion in 2023 to $130 billion last year, according to EY. Since Q4 of 2023, the aggregate value of industry M&A deals has declined each quarter.
EY called 2024 a "reset" year, as life sciences companies "turned away from the major M&A plays of 2023 to focus on bolt-ons and other smaller strategic plays."
Heading into 2025, however, some of the factors that have recently suppressed large M&A deals are shifting. The Federal Reserve has lowered its benchmark interest rate numerous times and U.S. election uncertainty is over, giving companies a better idea of the economic and regulatory landscape for the next few years.
“While caution over the past year was understandable and consistent with similar election cycles, PwC expects the recovery to pick up now that some sources of uncertainty have been resolved,” the firm wrote in its US Deals 2025 report.
There’s no uncertainty about the wherewithal of the biopharma industry to pull off significant deals. Large pharma companies are equipped with $1.3 trillion of dealmaking firepower, according to EY.
“It wasn’t the lack of dry powder,” Arda Ural, Ph.D., EY Americas life sciences sector leader, said in a recent interview. “It was the macro [environment] and the inability of companies to take a big risk.”
There’s also no uncertainty about the need for M&A. By 2028, patent expirations are expected to threaten $300 billion in industry revenues. Additionally, with 65% of big pharma revenues currently derived from dealmaking, according to EY, drugmakers must continue to look for inorganic growth.
“We have been talking about cautious optimism to the point that we run into optimism fatigue,” Ural said of the annual M&A prediction ritual. “This year, we feel more and more comfortable to drop the 'cautious' from the 'optimism.' I think ’25 has all the elements of a strong market for M&A.”
Imbalanced biotech funding
A recent hindrance to a healthy M&A environment has been a growing disparity in the biotech arena.
“It’s really a haves-and-have-nots game,” Ural said.
While startups guided by experienced teams and well-known leaders have been able to attract investors, according to Ural, companies led by those who are new to the space or those built on a new platform technology are finding it more difficult to secure financing.
“About a third of these [start-up] companies, for two years in a row, do not have the cash to sustain their operations for a year,” Ural said.
But evidence has shown over the last 30 years that declining interest rates fuel a more balanced financing environment, according to EY.
“We see a very strong inverse correlation between IPOs and the Fed’s rates,” Ural said. “Once the IPOs happen, it also has a positive effect on the M&A markets and dealmaking in general.”
AI and China companies
Lately, two of the most popular dealmaking themes in biopharma have been artificial intelligence (AI) and innovation in China.
“While major deals could come back on the agenda, the past 12 months have shown the industry is also widening its search for value, looking earlier in the product cycle, increasing strategic focus on the AI opportunity and tapping new opportunities including the new wave of innovation from China’s emergent biotech ecosystem,” EY wrote.
Over the past five years, there have been 330 transactions in the industry involving AI; these deals have combined for a potential value of $55 billion.
As for China, 85% of the licensing deals made with companies in the country are focused on oncology, and many of the transactions have involved antibody-drug conjugates.
“Opportunities outside traditional technological and geographical areas of innovation—such as AI startups and China biotech—offer an accelerated route to growth,” EY said.
PwC highlights pharma’s underperformance
In its Next in Pharma 2025 report last week, PwC pointed out the underperformance of drugmakers compared to companies in other industries. From 2018 through November 2024, an index of 50 large pharma companies provided an annual shareholder return of 7.6% compared to a 15% standard overall for the S&P 500.
There’s also been an imbalance in large pharma, with diabetes and obesity innovators Eli Lilly and Novo Nordisk accounting for 60% of the increase in value for the PwC pharma 50 index.
“For those outside of this group, 2025 is the year to consider what changes could finally disrupt this dynamic,” PwC wrote.