This article is part of the Life Sciences Industry 2025 Market Update. Click here to read the full newsletter.
As the page turned on 2025, optimism was high among life sciences dealmakers. Elections in the U.S. and other major economies had concluded, interest rates were poised to come in to focus, and the regulatory environment appeared to favor increased activity. And yet, that is not what happened, at least for the majority of the year to date. Why? Headwinds quickly blew in to extinguish that optimistic flame due to significant market reactions to U.S. tariff announcements, the (maybe empty) threat of most favored nation prescription drug pricing, and the velocity of changes and priority shifts within the Health and Human Services Department (HHS) and the FDA. Perhaps we should have seen this pause coming, since dealmakers despise uncertainty because it complicates revenue forecasting and valuation modeling. So, has the year so far been Dr. Jekyll or My Hyde? It’s been both.
On one hand, all the drivers for a surge were in place. Acquirers have strong balance sheets—hundreds of billions of dollars of “dry powder”—and still must address the looming patent (revenue) cliff (e.g., Keytruda, Eliquis, and Darzalex/ Faspro). Smaller biotechs still had many of the same systemic issues as last year, including uneven access to the capital markets and dwindling cash. And there has been less focus domestically on deal scrutiny generally. Public companies faced increasing pressure from activist investors to optimize portfolios, resulting in divestitures of slow-growing assets in favor of innovative and higher-growth franchises. So, it was natural to believe it would be a robust year for dealmaking, especially for later-stage, more “shovel-ready” assets. On the other hand, tariff policy caused significant uncertainty through the end of the first quarter and the entire second quarter. Dealmakers also needed to digest the impacts of sweeping legislative priorities, including OBBBA and wholesale reductions in force and other changes at FDA and HHS on approval timelines and regulatory predictability in general. Plus, the emergence of the Chinese innovation engine (U.S. pharma companies now license roughly a third of technologies being developed from Chinese biotechs) with the current administration’s larger geopolitical and national security priorities, which caused dealmakers to reevaluate dealmaking velocity with the Chinese. Finally, stubbornly higher cost of capital also contributed to hesitation to transact.
Taking stock, we saw fewer larger strategic deals in the $1 billion to $10 billion range. For example, Sanofi acquired Blueprint Medicines for $9.1 billion, giving Sanofi a commercialized drug portfolio and an early-stage immunology pipeline. Novartis purchased Anthos Therapeutics for $3.1 billion to secure access to late-stage stroke and blood clot prevention treatments. And Eli Lilly’s $2.5 billion acquisition of Scorpion Therapeutics strengthened its oncology precision medicine offerings. This makes sense given the seemingly opposing forces.
So, where does this leave us for the balance of the year? Through the end of July, M&A activity had surged to a $160 billion run rate, with approximately $32 billion of announced deal value in July alone. That is a positive short-term trend. Most of the “push-pull” risk and reward present in the first half of the year remains, so we expect to see more of the same through year-end. Dealmakers will have had time to digest and model the more dynamic landscape in which we are operating, but the macro factors that will drive deals remain. And so we anticipate an acceleration of dealmaking to close out the year, with risk-adjusted valuations reflecting the “Mr. Hyde” side of things.
Stay tuned for our report after the 2026 JP Morgan Healthcare Conference in January to see if we were right!
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