M&A deals drop 41% in value for life sciences industry
Global life sciences companies pivoted to smaller, smarter deals in 2024, according to EY’s annual M&A Firepower report.
While dealmaking volume remained stable in 2024, value fell 41 per cent from 2023 levels to US$130 billion as big pharma companies pivot towards smaller, more strategic deals.
Over half (51 per cent) of biopharma deals targeted earlier-stage pre-phase III assets, signalling a shift towards investment in earlier phases of the development cycle.
A potential driver behind this shift was a lack of available targets, following a surge in M&A activity in 2023 which reduced the number of de-risked, later-stage revenue opportunities to be acquired in 2024.
Subin Baral, EY Global Life Sciences deals leader, said: “For large pharmaceutical companies, 2024 may have been a ‘digestion year,’ as they integrate the acquisitions made the previous year.”
“Companies have focused on smart, bolt-on moves, looking for value in less obvious places. That strategic mindset will continue into 2025,” Baral said.
Looking forward to 2025, strategy will remain important for M&As in the life sciences industry. Around two-thirds (65 per cent) of all big pharma revenues now come from dealmaking, cementing it as an important means of value creation.
The report said the widening use of artificial intelligence (AI) will present opportunities for growth and innovation in big pharma companies. In 2024, most leading life sciences companies established AI partnerships.
However, the report said it would be challenging to successfully integrate AI into value chains and processes, and companies would need to build new capabilities to maximally benefit from AI.
First, companies must utilise the right data strategies, as life sciences data carries a high regulatory burden. Furthermore, AI should be embedded in processes and workflows to ensure maximum returns rather than being used for one-off problem-solving occasions.
Teams would also need education to gain confidence in using AI to support their workflows, and companies should focus on integration at every level, from IT to company culture itself, the report said.
Innovations in China were an increasingly important target for pharmaceutical companies, especially for those seeking to license novel oncology treatments such as antibody-drug conjugates.
However, the report warned that the incoming US administration is set to create uncertainty in US-China relations, posing potential challenges in tapping Chinese R&D capabilities. Furthermore, the US BIOSECURE Act, set to take effect in 2032, may limit cross-border collaboration in the life sciences industry.
Structural indicators still indicate that dealmaking in the life sciences industry will be strong in 2025, with US$1.3 trillion in dealmaking firepower available and tailwinds expected from the US administration as they loosen taxes and regulation. However, regulatory uncertainty and a lack of available targets may stymie deals in the new year.
