The biotech and pharma sectors are off to a promising start in 2025, with mergers and acquisitions (M&A) showing early momentum. However, the key question remains whether this surge in activity will be sustained throughout the year.
The momentum began with a series of notable deals, most prominently Johnson & Johnson’s proposed $14.6 billion acquisition of Intra-Cellular Therapies, which stands out as the largest pharmaceutical transaction since 2023. Alongside this, several smaller deals were announced by companies such as GSK, Eli Lilly, and a number of radiopharmaceutical firms, signaling a diverse range of strategic moves in the industry. Analysts have noted that the pace of deals in the first few weeks of 2025 suggests a significant shift compared to the previous year, with a heightened appetite for M&A activity.
In contrast, 2024 was marked by more cautious and strategic dealmaking, with big pharma focusing on smaller acquisitions, particularly those involving companies with products in earlier stages of development. This approach was seen as a way to secure long-term value while managing costs more effectively. The early part of 2025 has seen more action, but there are concerns that ongoing challenges, such as margin pressure on biopharma companies and the high premiums for top acquisition targets, could limit the overall volume of deals.
Despite these challenges, the industry still possesses substantial dealmaking potential. The $1.3 trillion in “firepower” available to fund transactions gives large pharmaceutical companies the financial flexibility to pursue significant deals. Additionally, the expiration of patents for major drugs, expected to result in the loss of $300 billion in revenue by 2028, is pushing companies to seek new products through acquisitions. For instance, Pfizer faces a wave of patent expirations that could jeopardize billions in annual sales, but its recent acquisitions, such as the purchase of Seagen, are seen as key to offsetting these losses.
Furthermore, the political landscape could play a role in shaping the M&A environment. Potential policy changes under the Biden administration, particularly in areas like Medicare pricing and drug negotiations, are likely to influence the strategic decisions of pharma companies. There is also speculation that a shift toward deregulatory policies could offer tailwinds to the industry, making it easier for companies to pursue larger transactions.
However, while there is optimism, the pace of dealmaking may not remain as robust throughout the year. Large pharmaceutical companies, including J&J, have indicated that while major deals like the Intra-Cellular acquisition are notable, smaller partnerships and deals are still central to their strategies. For example, J&J’s CEO has pointed out that most of the company’s value creation comes from smaller deals, citing the 75 such transactions completed in the previous year.
In summary, while the start of 2025 has been promising for M&A in the biotech and pharma sectors, the future remains uncertain. The combination of high acquisition costs, potential regulatory hurdles, and the ongoing pressure to replace lost revenue from patent expirations could temper the enthusiasm for big deals. The coming months will likely reveal whether the momentum continues or whether the market reverts to the more cautious dealmaking seen in 2024.
