- Dealmaking volume is stable, but value fell 41% to US$130b as companies pivot to smaller, smarter deals
- Leading bio-pharma companies still hold significant levels of Firepower, US$1.3t going into 2025, and confronts a US$240b growth gap by 2030
- 65% of all big pharma revenues now come from dealmaking, confirming a need for robust inorganic growth and value creation strategies
The global life sciences industry has pivoted from major dealmaking to smaller, smarter and more agile deals with mergers and acquisitions (M&A) investment totaling US$130b in 2024, a 41% decrease compared with US$222b in 2023, as the industry turned away from the big deals for de-risked assets that characterized 2023. Though deal value is down, volume is stable (with biopharma deals +17% vs. 2023), but average deal size dropped, as companies shifted focus to look for earlier-stage opportunities with lower price tags, according to the report (Report).
According to the 12th edition of the annual EY M&A Firepower report, which tracks global M&A investment in life sciences, instead of investing multibillions to acquire de-risked, market-ready assets, 51% of 2024 biopharma deals targeted earlier-stage (pre-Phase III) assets, trying to tap innovation at an earlier point in the development cycle. The slow pace of activity in 2024 may have resulted from the ongoing regulatory challenges from the pro-active Federal Trade Commission (FTC) and the ongoing implementation of the Inflation Reduction Act (IRA) in the US, and as a natural “reset” after the heightened activity of the previous year.
The life sciences AI opportunity
According to the EY Report, a surge in life sciences artificial intelligence (AI) partnerships highlights the opportunities the technology offers to life sciences companies, resulting in over US$55b in potential deal value, spread over more than 330 deals in the past five years. Recursion Pharmaceuticals completed the largest life sciences AI M&A deal to date in August 2024, acquiring Exscientia for US$712m and most leading life sciences companies have now established one or more AI partnership. AI seems to offer gains across the value chain from operations to commercial strategy. However, the Report details three challenges the industry will face to successfully partner with these technology companies: finding the right data strategy, learning to use AI end-to-end, and getting education and integration strategies in place across the firm.
China: widening the search for innovation value
As life sciences companies widen the search for new value drivers beyond the traditional fields of innovation, the EY M&A Firepower report reveals China is becoming an increasingly important research and development (R&D) target for companies seeking to license-in antibody-drug conjugates (ADCs) and other novel oncology treatments. 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. Additionally, one of the US biggest potential value biobucks deals (potential milestone payments if the alliance meets its clinical and commercial goals) of 2024 was Novartis/Shanghai Argo Biopharmaceutical Co Ltd ($4.2b). The report also notes that approximately 85% of China out-licensing deals are focused on oncology. However, 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 incoming US administration.
2025 dealmaking
The EY M&A Firepower report reveals there are strong structural reasons to expect a return to dealmaking; the industry is still holding US$1.3 trillion in dealmaking Firepower, meaning dry powder is there to make bigger deals – though the Firepower is unevenly distributed, with Novo Nordisk and Eli Lilly dominating. The industry also faces upcoming revenue challenges, with patent expiries set to wipe out US$300 billion in revenues by 2028, and growth gaps of US$240 billion looming by 2030. Additionally, the incoming administration in the US may offer significant tailwinds to the industry in the form of in corporate tax rate cuts and a potential roll-back of the IRA’s drug pricing provisions and the FTC’s interventionist stance, as part of a general deregulatory shift. However, despite these drivers, the Report found potential restraints to the 2025 market; the reduced number of high-quality de-risked assets, the ongoing margin pressure on life sciences companies reducing appetite for big spending and the fact that the most prized targets are still commanding high premiums in the market (a median of 75% in 2024, well above historical norms).