SAN FRANCISCO—Biopharma merger-and-acquisition (M&A) transactions are expected to grow in number, but not as much by dollar value, during 2025, as buyers pursue takeover targets in an improving climate for dealmaking compared to recent years, according to a report released to coincide with the 43rd Annual J.P. Morgan Healthcare Conference.
EY—the professional services firm originally known as Ernst & Young—reported the dollar value of biopharma M&A deals nosedived 51% during 2024, to 92 from 186 the previous year. Indeed the largest M&A deal of 2024 was Vertex Pharmaceuticals’ acquisition of Alpine Immune Sciences for a mere $4.9 billion—89% less than the $43 billion shelled out by Pfizer for Seagen in 2023’s priciest buyout. However, the volume of biopharma deals rose 17% year-over-year, to 95 last year from 81 in 2023.
“The volume increase is a better proxy, from our perspective, as to whether the deal market is robust and is coming back,” Subin Baral, EY global life sciences deals leader, told GEN Edge. “With that in mind, we do view that going forward in 2025, it will be a lot of the same. And what do I mean by a lot of the same is there will be smaller, smarter deals.”
And more of them, Baral added. Driving the expected increase in M&A will be companies eager to recoup revenues they expect to lose as their aging blockbuster drugs lose patent exclusivity by building replenished pipelines with candidates acquired from the companies they buy out. EY projects that patent expirations will erase $300 billion in biopharma revenue by 2028.
“We already know that there’s not enough internal R&D pipeline to replenish or at least substitute all of that revenue. That means there have to be deals,” Baral said. “Deals are going to be even more critical to the growth and value creation strategies for all of the biopharma companies.”
In pursuing those deals, he continued, companies increasingly are aligning them to their therapeutic area (TA) specialties of greatest interest.
“What we keep hearing is, ‘Is the therapeutic area that we are going after, is it a strategic focus for us? More and more, what we will see is very TA-specific targeted asset acquisitions,” Baral predicted. “There will be very likely divestment or at least portfolio pruning of some de-prioritized assets to ensure that they all fit into the right hands where they can be value accretive, as opposed to everybody trying to do everything. We will see that trend continue to evolve.”
$1.3 trillion in “firepower” for deals
One key factor likely to fuel more deal-making, according to EY, is the $1.3 trillion in capital—what EY calls “firepower”—being set aside for dealmaking by the top 25 biopharmas. That’s down 5% from $1.37 trillion last year and 7% from the all-time high $1.427 trillion tallied by EY two years ago, according to the 12th edition of EY’s annual M&A Firepower report, which tracks global M&A investment in life sciences.
“Broadly speaking, there is no shortage of funding from the big biopharma companies’ perspective. They are active. They want to do deals, but they want to do the right deals,” Baral said.
EY singled out two biopharma giants as dominating the supply of firepower—Novo Nordisk and Eli Lilly, the two companies that have come to dominate diabetes and obesity drugs through their development of glucagon-like peptide-1 receptor (GLP-1) agonist therapies that have grown into multi-billion-dollar blockbusters. During 2024, both unveiled plans to expand their manufacturing capabilities—Novo Nordisk with a $4.1 billion second fill-finish plant in Clayton, NC; Lilly by opening a $2 billion injectable products facility in Concord, NC, and announcing plans for a $5.3 billion active pharmaceutical ingredient plant in Lebanon, IN, and a $3 billion expansion of a recently-acquired injectable site in Kenosha County, WI, the latter announced last month.
The small dip in firepower reflects biopharma buyer preferences for drug candidates earlier in the development cycle. According to EY, 51% of 2024 biopharma deals targeted pre-Phase III drug candidates, as buyers sought to access innovative treatments, platforms, and other technologies when their value would be less than in late stages.
Prospective buyers are expected to be more willing to buy out companies with drugs of interest in 2025, in part because interest rates are expected to continue declining. And unlike 2024, buyers aren’t pausing from dealmaking to wait for election results. The second administration of Donald Trump, which takes office next week, is expected to offer less resistance to M&A deals through a Federal Trade Commission (FTC) he has vowed will be business-friendlier. Trump is also expected to advance tax cuts with the help of slim Republican majorities in the U.S. Senate and House of Representatives, as well as repeal the Inflation Reduction Act, or at least parts of the law that include empowering Medicare to set prices for some small-molecule drugs nine years after FDA approval, vs. 13 years for biologics—a provision that has angered biopharma industry leaders.
“Very optimistic”
“The general consensus in the industry is very optimistic that there will be much more favorable policies around M&A and for businesses in general. So the market is generally optimistic about the new administration coming in and some of its expected policy changes,” Baral said.
EY tallied 330 AI-focused partnerships, including M&A deals, among biopharmas between 2019 and 2024. Among the few AI buyouts that took place last year, the largest was Recursion’s combining with Exscientia for a reported $688 million (EY pegged the value at $712 million). As AI drug discovery heats up, Baral expects to see more M&A in the sector—as well as licensing and collaboration deals.
Among the most recent examples of the latter was announced Friday by AI drug developer Insilico Medicine when it granted Menarini Group subsidiary Stemline Therapeutics global rights to develop and commercialize a preclinical small molecule targeting a broad range of solid tumor cancers representing what the companies called high unmet needs in oncology. The molecule is the second asset that Menarini Group has inlicensed from Insilico Medicine (the first is the KAT6A/B inhibitor MEN2312, now in a Phase Ia study), and was developed in part through Insilico’s generative chemistry engine Chemistry42.
“Our previous experience with Menarini Stemline proved that the company is efficient, agile, strategic, and committed to rapidly delivering the best novel therapeutic solutions to patients with cancer, maximizing the probability of success of the program,” said Alex Zhavoronkov, PhD, founder and CEO of Insilico Medicine.
Stemline agreed to pay Insilico more than $550 million consisting of a $20 million upfront payment as well as payments tied to achieving development, regulatory, and commercial milestones, plus tiered royalties.
“Whether it be through collaboration, partnership, or outright straight acquisitions, we expect a lot of collaboration and partnership in this space to let the tech-focused companies do what they’re best at and let the biopharma companies do what they’re best at and combine the two where there can be a multiplier impact,” Baral said.
Despite concerns that AI will touch off job losses, Baral predicted that AI won’t supplant humans in future M&A dealmaking: “We do not believe that the human interaction in dealmaking will change significantly. This is very much a relationship and high-touch environment. We expect that to continue.”
IPOs, VC financings set to climb
Baral also foresees increases in initial public offerings (IPOs) and venture capital financings during 2025. In the United States and Europe, EY tallied 30 IPOs raising a combined $4 billion during all of 2024—up from 18 IPOs raising $2.87 billion in 2023, but still nowhere near the 2021 peak of 158 IPOs raising $20.79 billion, as the scramble to develop COVID-19 vaccines and drugs stoked an investor frenzy for biopharma stocks.
While more IPOs can be expected in 2025, Baral cautioned that he did not foresee the 20% to 30% jump in offerings that some market watchers have predicted: “Given the market dynamics and the pent-up demand that there is, we do think it may not be as high as 20%. However, we think the market will continue to have a little bit more appetite for IPOs than what they had in prior years.”
A recovering market for biopharma deals is also expected to continue improving the environment for venture capital (VC) financings. According to an EY analysis, the U.S. and European biotech industry raised $23.36 billion in VC during 2024, up 27% from $18.40 billion in 2023.
2024 marked the second-highest annual total for VC financing value in a decade, behind 2021’s $26.64 billion. However, last year’s robust total was generated from only 629 VC deals, the lowest volume since 2016, as there were fewer VC rounds but their average size increased, EY reported.
More discouraging for early-stage biopharmas: Only 63% of the VC deals were early-stage, compared to a five-year average of 71%.
“The early money, the early funding is going to be harder to find,” Baral acknowledged. “What it means for the biotech company looking to seek early-stage funding is, How do you create the business case? How do you start putting your value proposition with exit in mind for these VCs? What they’re thinking about is how do I get my money out?”
So, while we keep hearing it’s great to have novel science that may improve the standard of care by a small increment, those companies would be harder to be funded,” Baral continued. “We believe those companies that are backed by very robust clinical data and a management team that has an actual proven track record of taking it to the next phase, and the next phase are what the VCs are looking at.”
