Life sciences M&A spending accelerates, as the industry faces growth gaps and looks to AI and China for innovation

• Global life sciences M&A activity increased by 81% in 2025 to US$240 billion, driven by Big Pharma’s large-scale deals, despite fewer overall transactions
• China accounted for 34% of alliance investment in 2025, while AI technology is increasingly central to both identifying and integrating M&A targets
• With a record US$2.1 trillion in Firepower, the life sciences sector is prepared to accelerate dealmaking into 2026 and beyond

The global life sciences industry has accelerated dealmaking activity with mergers and acquisitions (M&A) investment totaling US$240b in 2025 – an 81% increase compared with US$130b in 2024 – driven by a return to large-scale dealmaking among Big Pharma companies.

According to the latest edition of the annual EY M&A Firepower report, which tracks global M&A investment in life sciences, despite a 12% decrease in overall deal volume (biopharma falling 19%, MedTech rising 6%), average deal size has risen as companies prioritize best-in-class innovations that are ready or near-ready for launch. The rising M&A spend reflects a surge in the mean per-deal investment, which reached US$2.1b – a 107% increase on the 2024 average deal size.

Subin Baral, EY-Parthenon Global Life Sciences Deals Leader, says:

“Overall industry fundamentals remain strong, driven by the loss of exclusivity and availability of Firepower for Biopharma companies. Dealmaking remains essential for growth, and despite headwinds – including regulatory and geopolitical uncertainty, high valuations, and capital-allocation tradeoffs – we anticipate a strong 2026. Market leaders will continue to capture best-in-class innovation, wherever it emerges, and translate it into better patient outcomes.” 

Widening growth gap and analyst caution

While company management teams remain optimistic about growth prospects, analysts are cautious. The EY organization report highlights a projected growth gap of US$100b by 2028, expanding to US$370b by 2032 as blockbuster products lose market exclusivity and geopolitical risks intensify. Over 50% of analyst forecasts for the top 25 pharmaceutical companies are neutral to negative on pipeline updates, and more than 40% of analysts are negative on M&A and partnership prospects. These perceived challenges hasten the urgency for the industry to identify high-potential deal targets to replenish pipelines and execute more effectively.

China’s rise as a global R&D powerhouse

China has rapidly emerged as a central player in biopharma alliances. In 2025, China captured 34% of the total alliance investment from the US and European Biopharma industry, compared with 4% in 2020, and five of this year’s 10 highest-value alliance deals were with China-based companies. The Chinese innovation ecosystem offers a faster, lower-cost pathway from research and development (R&D) to global commercialization. Given the scale and speed of innovation in China, it represents a significant opportunity for companies seeking to diversify and accelerate pipeline development.

AI reshapes dealmaking

Artificial intelligence (AI) continues to transform the dealmaking landscape. The EY M&A Firepower report highlights a 256% increase in the potential value of life sciences deals aimed at accessing AI technology platforms. AI is now central to accelerating and optimizing the entire deal cycle – from identifying targets to integrating new assets. The report notes that only 32% of deals achieved at least 100% of their expected revenue targets, with higher success rates for acquisitions in therapeutic areas where the acquiring company was already active. There is therefore significant opportunity for companies to optimize dealmaking execution with AI.

Outlook for 2026 dealmaking

With a record US$2.1 trillion in available Firepower, the life sciences industry is well-positioned to accelerate dealmaking into 2026 and beyond. The EY report indicates that companies must put AI at the heart of their M&A strategies to close growth gaps and deliver results in an increasingly complex and competitive market.

The “Bioweave” ecosystem

The report emphasizes that, for long-term success, the industry must fundamentally rethink its approach to partnerships, highlighting the “Bioweave” model. In this model, life sciences leaders will collaborate across and orchestrate more fluid innovation networks. According to the report, companies can strengthen their market position by becoming connectors, catalysts and co-creators of innovation – working with a dynamic ecosystem of partners both within and outside the life sciences sector. By adopting this agile and interconnected approach, organizations will be better positioned to achieve sustained growth and respond effectively to the evolving challenges and opportunities in the industry.

For the full analysis, data and recommendations, read the complete EY Firepower M&A report 2026.

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Notes to editors

About the EY M&A Firepower report

The EY M&A Firepower report measures companies’ capacity to fund transactions based on the strength of their balance sheets. It has four key inputs: 1. cash and equivalents; 2. existing debt; 3. debt capacity, including credit lines; and 4. market capitalization. In constructing the model, the following assumptions were made: first, a company will not acquire targets that exceed 50% of its existing market capitalization; second, the debt/equity ratio of the combined entity created by a transaction cannot exceed 30%.

While some life sciences companies have made acquisitions that go beyond these upper limits, the intent is to apply a uniform methodology to measure relative changes in Firepower. The EY Firepower report measures capacity to conduct M&A transactions financed with cash or debt. It does not measure the ability to conduct stock-for-stock transactions. However, increases in a company’s stock price do boost its Firepower under the EY Firepower report’s formula, largely because equity enables companies to borrow more to finance transactions.