Life sciences companies switched from big acquisitions to smaller, smarter deals in 2024, but this year may see a resurgence in deals along with continuing interest in AI and China as a source of innovation.
Mergers and acquisitions investment by life science companies stood at $130bn in 2024; down significantly on the $222bn in deals 2023, with the average size of a deal dropping as companies shifted focus to look for earlier-stage opportunities with lower price tags, according to the M&A Firepower report from consultants EY.
For large pharmaceutical companies, 2024 may have also been a “reset year,” as they integrate the acquisitions made the previous year. The consultants said that instead of investing multibillions on market-ready acquisitions, half of the 2024 biopharma deals targeted earlier-stage (pre-Phase III) companies and products, with pharma companies trying to tap innovation at an earlier point in the development cycle.
M&A matters a lot to life sciences companies; products acquired this way generate the largest share of overall revenues (45% in 2023) for the top 25 life sciences companies. That’s in contrast a decade ago, when products derived from in-house R&D were the biggest source of company sales. Since then, revenues from M&A products have outstripped organic revenue growth, and alliance or joint venture-derived products have grown even more dramatically and accounted for 20% of company revenues in 2023.
“With nearly two-thirds of company revenues deriving from M&A, JVs or alliances, companies need a dynamic and proactive partnership strategy for future growth,” the report said.
However, there are good reasons to suspect that dealmaking is about to make a return.
The cash is certainly there for big deals to take place: EY calculates that there is around $1.3 trillion in dealmaking funds held across the industry, even if this is unevenly distributed, with Novo Nordisk and Eli Lilly dominating. The industry also faces upcoming revenue challenges, with patent expiries set to wipe out $300 billion in revenues by 2028, which means companies are looking for new growth opportunities.
However, the lack of high-quality de-risked potential acquisitions, the ongoing margin pressure on life sciences companies and the high premiums being demanded for the most prized targets may dampen some of the enthusiasm for spending. The report also noted that signs of recovery in biotech venture capital financing will offer biotech firms the option to “go it alone” rather than seeking exits which may drive up the cost of acquiring these assets.
Subin Baral, EY Global Life Sciences Deals Leader, says: “With nearly two-thirds of all major pharma company revenues set to come from dealmaking in the next five years, deals will remain at the center of life sciences strategy.”
The report also predicts that new opportunities – such as AI startups and China biotech – offer an accelerated route to growth for some companies. For example, a surge in AI partnerships highlights the opportunity life sciences companies see in the technology with over US$55b in potential deal value, spread over more than 330 deals in the past five years.
Life sciences CEOs see emerging technologies like AI as the biggest disruptor of the next 12 months, and companies still face the challenge of finding the right data strategy, learning to use AI end-to-end, and getting education and integration strategies in place.
China is becoming an increasingly important R&D target for companies seeking to license-in antibody-drug conjugates (ADCs) and other novel oncology treatments the report said, pointing to the first-ever full buyout of an innovative Chinese biotech by a big pharma saw AstraZeneca pay US$1.2b to acquire Gracell Biotechnologies Inc in 2024.
However, as the report points out, challenges to the growth of China’s life sciences innovation economy include the US Biosecure Act, due to take effect in 2032 and the uncertainties of the China-US relationship under the new US administration.
Certainly 2025 has started with some big deals: earlier this month January Johnson & Johnson said it is to acquire Intra-Cellular Therapies, a biopharmaceutical company focused on the development and commercialization of therapeutics for central nervous system disorders $14.6 billion.
In addition, Eli Lilly said it will acquire PI3Kα inhibitor program STX-478 from Scorpion Therapeutics, a private biotechnology company developing small molecule precision oncology therapies, for up to $2.5 billion.
GSK also announced plans to acquire IDRx, a Boston-based, biopharmaceutical company dedicated to developing precision therapeutics for the treatment of gastrointestinal stromal tumours. Under the agreement, GSK will pay $1 billion upfront, with potential for an additional $150 million as a success-based regulatory approval milestone payment.
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