The drop in biotech stock market valuations has also pushed down the private equity funding valuations and availability. Venture capital (VC) firms have taken big paper losses on their existing ownership positions in private and public biotech/biopharma companies and dramatically slowed funding new companies, except in the hot areas of technology.
Their focus has been on defending their existing portfolio companies to make sure they survive the funding and IPO drought. However, there are signs that investing activity is picking up as VCs take advantage of lower valuations and because they really cannot stop investing entirely.
With many of the private biotechs running out of money, we will continue to see downsizing announcements on a regular basis. Some biotech companies will not survive and will have to shut down. This down cycle has impacted the biotech sector many times historically, so this is not a new development for the industry.
Pharma M&A in 1H2025 and the outlook
Acquisitions by pharma companies have traditionally been a regular part of the landscape. Although Big Pharma organizations have revived their ability to invent new drugs, they still need to supplement their own efforts with acquisitions of and collaborations with pharma and biotech companies. With many pharma manufacturers facing patent cliffs on their major products, the need to acquire drugs and drug candidates continues to be high.
However, only four deals, worth $16.2 billion, were completed in the first half of 2025 versus 32 deals completed, worth $19.2 billion, for all last year. This represents a massive decrease in the number of deals and an increase in the dollar volume of M&A agreements in the pharma space. Johnson & Johnson’s $14 billion acquisition of Intra-Cellular Therapeutics, which closed in April, drove the dollar volume up in the first half.
Why have the number of pharma acquisitions declined? Pharma companies in general, with some exceptions, are focusing on strategic small-to-medium-sized acquisitions.
They are also focused on biotech companies via acquisitions, strategic partnerships, and in-licensing to achieve pipeline growth. Biotech M&A volume is not reflected in the numbers mentioned.
As of June 30, 2025, the dollar value and number of deals announced but not closed was low at $15.6 billion (16 deals).
Looking into the future, there may be one or two larger deals, but those deals will not be the strategic focus of the pharma organizations. Pharma M&A will continue to be moderately active in terms of the number of deals, with a focus on small-to-medium-sized transactions but modest dollar volumes.
Deals with a strong strategic rationale or a theme around adding new and growing technologies and products will continue to be pursued. Although the Trump administration is threatening to change drug pricing and impose large tariffs on imports of pharmaceuticals, there is still, as of this writing, much uncertainty about what will actually be implemented that dealmakers have not adjusted their approach to the market yet.
Biotech M&A in 1H2025 and the outlook
In the first half of 2025, 12 biotech deals, worth $12.6 billion, were completed versus 73 deals, worth $109 billion, finalized in all of 2024. On an annualized basis, this represents a major decline in both the total dollar volume and the number of deals completed. Transactions in the US dominated relative to the rest of the world.
Biotech M&A dollar volume and number of deals totaled a record high in 2024, driven by the combination of the ongoing strategic acquisition interests of large pharma and the plunge in biotech IPOs that reduced the options for private biotechs.
The drop in the first half of this year is a reflection of the flurry of uncertainties that have hit the biotech and pharma sectors.
The dollar value of the pipeline of biotech deals announced but not closed as of June 30, 2025, was in line with the first-half trends, at $15.1 billion (26 deals).
What is driving this trend? The surge in activity in 2024 was sparked by pharma companies aggressively looking to build their pipelines and revenues. This was aided by the collapse of the IPO market, the severe reduction in equity funding, and a dramatic drop in the share prices of biotechs, which resulted in these companies being more willing to consider a sale of their organization. There are also a number of specific therapies and markets that are a high priority for the strategic buyers.
The slowdown in the first half of this year has been driven by the dramatic increase in uncertainty in the US due to the major federal funding overhauls at the NIH and university research centers and the severe cutbacks at the FDA.
What is the outlook for biotech M&A? We expect more of the same in the future, driven by the same factors, with a moderate number and dollar volume of biotech deals being completed over the next couple of years, along with partnering, licensing, and royalty monetization for funding and for shareholder liquidity.
Approaches by senior management
Pharma will be heavily focused on M&A where there is a compelling strategic rationale and where the same results cannot be obtained internally or through licensing and strategic partnerships. However, it will continue to be challenging to determine what the right valuations are for each deal. The use of earn-outs and contingent payment structures remains a third or more of the market, which reflects the challenge of bridging buyer and seller valuation expectations.
Private biotechs with assets that appeal to pharma should consider selling now, given the moribund IPO market, steady M&A valuations, and the high demand for deals in attractive segments.
What does it all mean?
The big unknown for the future is the impact that the ongoing Trump administration actions will have on healthcare regulation, drug prices, etc. However, predicting what will actually happen is very difficult at this stage.
Barring major disruptions, pharma companies will continue to enjoy relatively attractive stock market valuations and access to the financing markets, which will continue to be a stabilizing force on the industry. Although biotech stock market valuations are down and are taking some time to recover, existing public biotech companies are able to sell equity, and there are small signs that the IPO market for biotech companies will begin a slow recovery.
This overall picture is positive for the pharma companies because there is a large supply of biotech companies available for M&A transactions, licensing, and strategic partnerships at valuations that are lower than two years ago.
For biotechs, the key will be the quality and the maturity of their drug candidate pipeline and their cash needs. If a biotech company is in a therapeutic area that is the subject of high strategic interest and/or they are at a viable financing point, the outlook will be positive. The rest will have to forge a path that is sized properly relative to how long of a runway the organization will need to reach a viable financing or M&A point.
For many biotechs, it will be a matter of survival versus success.
Peter Young is CEO and president of Young & Partners, and a member of Pharm Exec’s Editorial Advisory Board. He can be reached at pyoung@youngandpartners.com
