With every new year comes reflection and resolutions. But as we go to press well into January, it is worth a reminder that studies show nearly 90% of New Year’s resolutions will have already failed by the end of the month. Fortunately, for those with the ever common resolution to slim down, the life sciences sector offers inspiration. Unlike in 2023, when a Q4 dealmaking binge over the holidays led to the sector outperforming the market, life sciences M&A cut down and stuck with it throughout 2024. It’s almost as if the life sciences M&A sector joined the GLP-1 party itself, as appetites stayed small throughout the year.
While global M&A deal value across sectors remained relatively flat overall, pharmaceuticals and life sciences M&A in 2024 dipped relative to the prior year. This stands in stark contrast to 2023, when life sciences M&A outperformed the market with a 50% increase in deal value from 2022 compared to a 17% decline in overall M&A activity across all industries.
Luckily, there’s more to this year’s story. The number of deals in the sector in 2024 was actually down only slightly from the prior year, at a 5.2% decline. Total deal value is where the market really shed its weight – down a remarkable 33.7% from 2023.[1] Clearly, deals have been getting done in the sector – life sciences buyers are still eating about as many meals, they’re just smaller bites. Indeed, the largest US biotech exit in 2024 was Vertex Pharmaceuticals’ $4.9 billion acquisition of Alpine Immune; by contrast, there were eight US biotech acquisitions exceeding $5 billion in 2023.
With J&J’s announced deal to acquire Intra-Cellular Therapies for $14.6 billion kicking off 2025 with a bang, will the pounds go back on in the new year? Below we take a look at drivers of these dynamics over the past year and offer our predictions for what’s to come in 2025.
Fundamental M&A drivers continue to spur a foundation of deal activity
Patent cliffs and pipeline pressures
Looming patent expirations for blockbuster drugs remained a significant driver for M&A activity, albeit with drugmakers taking a more measured approach in 2024. By 2030, more than 190 commercial drugs will lose patent exclusivity, putting at risk $236 billion in Big Pharma sales. 2024 saw companies focusing on internal research and development, innovative partnerships, and targeted bolt-on asset acquisitions to bolster their pipelines. That said, some industry participants still looked to capitalize on anticipated vulnerabilities in their competitors’ pipelines with meaningful M&A bets – such as Eli Lilly’s $2.3 billion acquisition of Morphic and its promising small molecule inhibitor for the treatment of inflammatory bowel disease (IBD) in light of approaching patent cliffs in AbbVie’s and J&J’s mainstay products for IBD.
Portfolio optimization through divestitures of noncore assets
In addition to pharma’s smaller appetite in 2024, pharma companies continued to slim down by shedding nonessential assets to sharpen their strategic focus on core products. Looking ahead, expect the fruits of these efforts to free up valuable resources – capital and management bandwidth – that can be redirected toward higher-value, strategic acquisitions in 2025 as the general economic backdrop (inflation, interest rates, antitrust) looks to become more conducive to bigger bets.
The activism specter persists
Life sciences companies continue to find themselves in activists crosshairs. Particular criticism has been levied at acquisitive companies such as Pfizer for pursuing so-called “undisciplined and incoherent” acquisitions and at companies with an extensive R&D pipeline like Exelixis. While we continue to see life sciences companies of all shapes and sizes pursue acquisitions with a compelling strategic rationale, we continue to monitor whether the threat of activist criticism of public acquirors who pursue acquisitions that may be perceived as riskier or costlier will have a chilling effect on M&A activity in the year to come.
Private company deals: Dual-track processes lead the way to a seller’s market
2024 saw a return of the prevalence of dual-track processes for private biotech companies. This approach, combining M&A and initial public offering (IPO) preparations on parallel tracks, allows companies to maximize optionality in an uncertain market. As deals get smaller, mid- and late-stage biotech companies, some of which may have been planning to go public, increasingly become targets for acquisition by large pharmaceutical companies. Biotech M&A involving private company targets was actually up 17% by deal count and up 12% by deal value compared to the prior year.
Of course, the target’s leverage in the M&A track of a dual-track process inherently increases when the IPO track is a viable strategy. As we discussed in Cooley’s August 2024 “Market Talks,” the landscape for IPOs has continued to gain steam over the course of the year, with many companies opting for public offerings to capture investor interest. And strong buyer interest in targets with tested products resulted in the median size of upfront cash consideration in these deals more than tripling, compared to the average over the previous six years, with less contingent milestone and earnout consideration as a percentage of the total consideration.
For acquisitions of clinical-stage companies, this also reflects an increased appetite by buyers for companies with recent data readouts of later-stage trials, resulting in a relatively de-risked regulatory approval runway. In addition, recent Delaware court decisions that we covered last fall regarding heavily negotiated earnout covenants – including one decision awarding the former shareholders of Auris Health more than $1 billion in damages in an earnout dispute arising from Auris’s sale to J&J – could make some buyers think twice about committing to significant back-end milestone payments even in transactions with relatively circumscribed post-closing efforts commitments from the buyer.
On the other side of the pricing certainty coin, we also have seen “market-ready” late-stage sellers increasingly negotiating no-indemnity deals, which is a notable shift in deal structure in favor of private sell-side companies as they seek transactions with limited contingent liability, and increased comfort in securing and relying on representation and warranty insurance policies as a strategy for risk mitigation on the buy-side.
Public company deals: Smaller bites in more focused therapeutic areas
The landscape for public company sales in the life sciences sector in 2024 was notably quieter than expected, with anticipated high-profile deals failing to materialize. Despite market speculation around potential sales of publicly traded biotech firms – fueled by shifting regulatory environments, capital constraints and strategic realignments – relatively few large transactions actually took place. Despite the attractiveness of late-stage, de-risked assets, buyers appear more cautious, focusing on opportunities that provide targeted, therapeutic benefits rather than pursuing the big-ticket acquisitions seen in prior years. Faced with market uncertainty, many public companies have shifted toward strategic partnerships (including joint development and marketing deals), licensing deals and spinoffs as alternative means of value creation, with a preference for preserving autonomy or navigating through organic growth avenues. And in the face of valuation disconnects, dealmakers in the public company space were less likely to rely on increased contingent consideration (relative to upfront payments) – long viewed as a bridge to a transaction in the life sciences space – to get transactions over the finish line.
Where deals of more than $1 billion did get done in 2024, we saw a focus on three primary therapeutic areas: immunology, cancer and neuroscience. Immunology deals stood out, including Vertex Pharmaceuticals’ $4.9 billion purchase of Alpine Immune Sciences and Eli Lilly’s $3.2 billion acquisition of Morphic Therapeutic, while Novartis’ $2.9 billion pick up of Morphosys represented the largest acquisition in the oncology space. The sale of Poseida Therapeutics, a cell and gene therapy-focused company, for up to $1.5 billion helped to bolster the acquirer’s cancer and immunology pipeline with potential blood cancer and autoimmune and rare diseases treatments. In neuroscience, Lundbeck acquired Longboard Pharmaceuticals and its anti-seizure drug candidate, bexicaserin, for $2.6 billion, while AbbVie secured Aliada Therapeutics with its Alzheimer’s drug candidate for $1.4 billion.
New industry activity drives optimism for robust 2025 M&A pipeline
If we failed to mention GLP-1s and artificial intelligence (AI) when looking back at 2024 in any context, we might lose our coveted year-in-review blog posting license. Luckily, the life sciences industry’s continued expansion into areas such as obesity, innovative technologies like antibody-drug conjugates and AI puts these trends front and center in the space, even foreshadowing a potential dealmaking rebound heading into 2025. And the entry of increasingly agile, so-called “next-generation” players into the M&A landscape provides further optimism for a strong year ahead.
GLP-1s
The GLP-1 space, particularly in the context of obesity treatment, remains one of the brightest spots in life sciences. With demand for GLP-1 drugs – used to treat type 2 diabetes and promote weight loss – surging, there has been notable M&A activity, particularly among players aiming to establish or solidify their positions in this highly lucrative market.[2] Novo Holdings’ $16.5 billion acquisition of Catalent, a leader in contract manufacturing for cell and gene therapies, stands out as the largest healthcare deal of 2024. The $2.7 billion sale of Carmot Therapeutics, a promising Swiss GLP-1 drug developer, further underscores the sector’s vitality. The encouraging clinical trial results that followed the closing of this acquisition suggest that the GLP-1 market will see continued consolidation efforts.
Biotech companies that can innovate in the GLP-1 space, especially those focused on providing an oral method of administration, are likely to be particularly attractive targets. With Novo and Eli Lilly (and its nearly $1 billion acquisition of an injectable medicine manufacturing facility from Nexus Pharmaceuticals) currently dominating the market, other players are positioning themselves to challenge the status quo, fueling expectations for continued M&A activity in the GLP-1 space in 2025.[3]
AI
The growing integration of AI into life sciences offers another avenue for M&A growth, with AI increasingly viewed as a key enabler of innovation across drug development, diagnostics and patient care. Recognizing the transformative potential of AI, healthcare services companies have been actively acquiring data and analytics firms to bolster their digital transformation. These acquisitions are helping firms enhance their capabilities in areas such as smart health devices, direct-to-consumer therapeutics and digital health tools.
Pharmaceutical companies also are investing heavily in AI-driven solutions to optimize their drug development processes, particularly by leveraging AI platforms to analyze vast datasets and accelerate discovery. One notable example is Xaira, an AI-based drug discovery platform led by former Genentech executive Marc Tessier-Lavigne, which launched with a robust $1 billion in venture capital financing. As AI continues to evolve, the life sciences sector is poised to see further M&A activity aimed at acquiring cutting-edge technologies to improve drug discovery and other key business functions. The growing excitement around AI at the intersection of healthcare and drug innovation could help fuel an influx of strategic acquisitions in 2025, especially as companies look to leverage AI to stay competitive in an increasingly data-driven world.
Emergence of ‘next-generation’ acquirers
While early expectations for large-cap strategic life sciences M&A activity in 2024 failed to materialize, smaller and medium-sized players are emerging as key drivers for future dealmaking. Many of these companies – some holding substantial cash reserves – have been increasingly likely to step up as acquirers as they seek to deploy capital and create value for their shareholders. This shift could pave the way for more targeted, strategic acquisitions, especially in high-growth areas like precision medicine and healthcare/AI.
In particular, newly public companies are executing a playbook that uses stock-for-stock acquisitions as a core part of a fast-paced and high-growth strategy. A prime example is Tempus AI, a leading precision medicine company, which priced its IPO earlier in 2024 and quickly leveraged its public market access to fund acquisitions. Tempus’s announced acquisition of Ambry Genetics, a genetic testing firm, exemplifies how newly public companies are using M&A to expand horizontally into new therapeutic or technological areas and gain broader market reach and enhanced competitiveness across the life sciences sector.
As more newly IPO’ed companies emerge, look for them to continue to position themselves as nimble, diversified players in fast-growing therapeutic areas. Should this trend continue, 2025 could see a surge in M&A activity driven by this new generation of smaller acquirers.
Antitrust: The elephant in the room (literally, as the donkey leaves the room)
After an active 2023 in which the Federal Trade Commission (FTC) challenged two life sciences deals and investigated several others, there were not any US government challenges to life sciences transactions in 2024. Indeed, while several deals drew extended reviews, multiple other large life sciences transactions cleared Hart-Scott-Rodino review with limited to no scrutiny. Even with some regulatory successes, life sciences M&A dealmakers continue to use reverse termination fees to allocate antitrust risk, even in transactions where there are not traditional overlaps that signal antitrust risk. Fifty percent of life sciences M&A deals greater than $1 billion had an antitrust reverse termination fee, down slightly from 2023 but still up from prior years.[4] Parties also are showing creativity with structuring of antitrust-related costs (including pushing buyers to cover legal fees) and focusing on interim operating covenants as they plan for longer timelines between signing and closing.
The lack of M&A enforcement actions may be in part due to the Biden administration’s FTC having successfully deterred companies from entering into transactions with even limited antitrust risk. And buyers increasingly did thorough antitrust homework before embarking on major acquisitions. For example, when AbbVie announced its proposed acquisition of Cerevel Therapeutics for $8.7 billion in December 2023, the CEO publicly explained that the company had “looked very carefully at the FTC risk before proceed[ing].” With that confidence, the parties received second requests in February 2024 but ultimately closed without FTC intervention in August 2024. Similarly, Novo Holdings’ $16.5 billion acquisition of Catalent closed in December 2024, nine months after its announcement, surviving antitrust scrutiny in the US and European Union without a formal challenge, despite publicly stated concerns by Eli Lilly, a competitor to Novo in the weight loss space.
The FTC nevertheless has remained focused on the life sciences/medical device sector in other parts of its enforcement efforts. For example, it issued an administrative complaint accusing pharmacy benefit managers (PBMs) of engaging in “unfair method[s] of competition” by “abus[ing] their economic power by rigging pharmaceutical supply chain competition in their favor” in September 2024, and signaled the potential for similar actions against pharmaceutical manufacturers. It also is continuing to scrutinize alleged “improper” patent listings in the US Food and Drug Administration’s Orange Book, sending warning letters to several companies and notifying the FDA that it disputes the accuracy and relevance of 400+ patents.
Looking forward, we expect a focus on the sector by the FTC to continue, especially given that perceived high drug prices remain a bipartisan area of concern. That said, Andrew Ferguson, Trump’s proposed chair of the FTC, is self-proclaimed to be “pro-business,” promising to “[s]top Lina Khan’s war on mergers” as “[m]ost mergers benefit Americans and promote the movement of the capital that fuels innovation.” We can therefore expect that Ferguson will be less inclined to pursue the more aggressive and novel theories of harm, like the bundling theory the FTC litigated in Horizon/Amgen, and instead focus on investigating cases under more traditional theories based on horizontal competition. We also expect the FTC under Ferguson to be more receptive to resolving horizontal overlaps with divestitures.
What’s next? Looking ahead to 2025
Despite the modest pace of deal activity in 2024, the underlying drivers of innovation and strategic growth remain strong. Here are our predictions for 2025.
- Regulatory enforcement stability: With a new administration in Washington, we expect antitrust enforcement to return to a focus on traditional, well-understood theories of harm and remedies, providing dealmakers greater certainty in navigating the environment.
- Focus on targeted therapeutics: Dealmaking is likely to be more targeted and strategic, with a focus on emerging technologies and therapeutic breakthroughs. Large biopharmaceutical companies are expected to continue investing in targeted therapeutic areas with high potential for financial returns – such as oncology, immunology and neuroscience.
- Next-generation disrupters: Nimble, innovative companies will look to make their mark on the life sciences landscape through bold acquisitions and a hyper-focus on development of transformative technologies. Look for stock-for-stock deals to continue to pop up in the space.
- Continued interest in AI and digital health: The integration of AI and digital health solutions is expected to drive further M&A activity as companies seek to enhance their technological capabilities.
- Steadily increasing deal activity: Overall, we see 2025 as poised to be a year of cautious yet determined dealmaking, featuring continued volume and bigger bets as companies navigate a new regulatory environment, embrace new technologies and seek strategic growth opportunities amid increased competition from new types of buyers (and, indeed, this publication goes to press on the tail of J&J’s announced agreement to acquire Intra-Cellular Therapies for $14.6 billion). That’s our New Year’s resolution for M&A in the sector at least – and we’re hoping to see it stick to it!
[1] All deal count and deal value figures sourced from CapitalIQ, unless otherwise indicated.
[2] Pitchbook, Q3 2024 Global M&A.
[3] PwC, Global M&A Trends in Health Industries.
[4] Per Deal Point Data, with Cooley analysis.
