Pharma’s New Growth Equation: Smarter Deals, Stronger Science, Rising Costs

Recent rumblings of a potential AstraZeneca and Bristol Myers Squibb megamerger aside, according to Glenn Hunzinger, U.S. health industries leader at PwC, biopharma’s current M&A cycle is being defined less by such headline-grabbing deals than by a steady cadence of highly targeted acquisitions and licensing agreements in the $5 billion to $15 billion range. Companies, Hunzinger adds, are deploying capital with greater precision, seeking differentiated science while avoiding the integration risks that he says often accompany transformational deals.

The urgency is clear. With major patent cliffs approaching, organizations need to replenish pipelines, but they’re doing so in an environment where scientific opportunity has expanded dramatically, creating what Hunzinger describes as an unprecedented supply of promising assets. And despite policy uncertainty — from Inflation Reduction Act implementation to evolving drug pricing dynamics — investment in such prospects hasn’t slowed as much as it has changed the mechanics of dealmaking, he adds.

Ultimately, Hunzinger argues, the science still drives every decision. “If the science is there,” he says, “the economics can work.”

For more on the M&A outlook, including the surge in licensing opportunities out of China and artificial intelligence (AI)-boosted diligence and valuation, as well as the broader need to curb the near-unsustainable tide, Hunzinger believes, is rising in U.S. healthcare costs, read the Q&A with PwC’s health leader ahead.

Pharmaceutical Executive: Amid a period many, including yourselves, are defining as the strongest biopharma M&A market in years, is the shift to favoring more selective, targeted arrangements a permanent one in how large pharma thinks about growth?

Glenn Hunzinger: For the past couple years we've been sort of beating the drum on the $5 billion to $15 billion range of biotech-related deals. There are a couple of reasons. One, try to deploy capital as efficiently as possible. Two, big transactions are tougher to integrate. A lot of the pharma companies are going through their own transformation, metamorphosis, digitizing the company, and modernizing, and so the idea of trying to do that again — I think nobody wants to take that on.

And combine that with, there's a lot of science that got funded five years ago that now, I think, we're seeing it come through, where there's just a lot of great science. You look at the biotech XBI, it’s up. Not that it’s a telltale sign of everything; there's a lot of variables that go into that. But IPOs are kind of back. I think we're seeing three times the number of companies that are hitting better data sets than we saw five years ago.

Combine that with, it's never been a better time to be a patient. We know more about the human body than ever before. We can use technology now in ways we never thought possible. So big data sets, being able to do things and get at breakthrough therapies that we were never able to get at before.

Obviously patent cliffs in '28 start to get sizable, so a lot of companies do need to replace that. But transactions are a fabric of this industry, and we'll continue to see that. And then as we think about 2026, we said early in the year, we expected it to be a big year. We're seeing that play out. I think there's probably going to be close to 300 billion dollars of investment in M&A this year.

Q1 was very strong. We saw that continuation in Q2, so certainly the run rate gets it closer to $300 billion, which would be the second-highest year in the past 10.

The environment is not de-risked, but I think with most of the pharma companies, this environment is the new norm. They've had to deal with general instability, whether it's geopolitical, drug pricing, tariffs, etc., and this is the landscape.

The environment is not de-risked, but I think with most of the pharma companies, this environment is the new norm.

I think most companies have built the muscle to deal with that landscape. They need to be able to deploy capital as efficiently as possible, and we're seeing it. So I think the world of supply and demand is hitting in a way that's trying to find the balance of, in a world of binary outcomes, how do you invest capital in the most efficient, risk-balancing way?

PE: Are you seeing less de-risking these days and companies taking more chances on earlier-stage assets?

Hunzinger: I think a little bit. Trying to create value in this landscape is really hard, and one of the ways to try to do it is in the earlier stage, because once it's later on and de-risked, you're paying a premium. Then it becomes, how do you operationalize it and buy something that then you have to go create value through?

So I think there is a balancing of early, mid, and late stage, taking that portfolio approach of, hey, I have some certainty in certain things and I have to trust that I have a great team of people that can evaluate the science and see the trajectory and take some risk.

I'd say, at least in my 30 years, deal teams have gotten, I think, so good at evaluating targets when we think about the depth of the diligence they're doing, the speed in which they're doing it, and the conviction. That gives people a little bit more confidence to be able to get things done knowing you can get a little deeper on the understanding, and certainly technology plays a role in that.

PE: How much of a factor has the innovation emergence in China played in those evaluations?

Hunzinger: There’s been a lot of investments, and certainly on the licensing side of deals, there's been a plethora. The innovation in China is clear. It's very strong. I think the statistic is there are 4,000 biotech companies in China. People are seeing that the quality of the assets coming out has been really strong over the last couple of years. And they have figured out ways to transact there, setting up NewCos, buying the assets they want from the NewCos versus full companies. A lot of things have become tried and true.

Again, as the industry goes through the journey of trying to figure things out, I think getting deals done for China assets is another way that they've figured out as becoming the norm.

PE: A lot of buyers are pursuing deals, leveraging AI as a major component and looking at it as a competitive advantage. Do you see that continuing?

Hunzinger: Yeah, I think the internal capabilities now with AI help in the speed in which most people in corporate development right now operate in, with too high of a volume of deals to evaluate. In order to deploy capital efficiently and create value, you've got to really look at a lot of the opportunities in depth.

And then technology, absolutely, the way that's enabled them. Just think about valuation models. Back in the day, it was typing into Excel. Now with the technology that exists, you can actually value companies at a rapid pace, where things that would take weeks and months now take days.

That is important because it goes to the point earlier of having conviction around the deals that you are looking at. They know that they've gone through the process of that funnel, and so the ones that have made it through the funnel have conviction, and they're able to move at a lot faster pace to get things done.

PE: On the science end of it, is the market mature enough yet that AI is becoming a major driver of some of these deals?

Hunzinger: Yeah, there's a little bit of that. I think there are people that are dipping their toe in the water on that to try to understand it. As far as the capabilities around AI and R&D, a lot of folks are certainly using AI for their own developmental capabilities, which is helping them evaluate, because you're able to see the progression of the trial and some predictive analytics on, hey, where do we see this going and the “what-if” scenarios? It’s easy to do that on the math side. It's hard to do it on the science side, but I think they've gotten stronger at those capabilities.

Some are buying certain technology capabilities. Not a ton, but it's part of the overall trend of just trying to modernize pharma companies. But it's a smaller piece of the dollars being allocated. The dollars of that [potential] $300 billion [in total deal investment] are still around IP, breakthrough therapies, etc., but certainly AI is no doubt a part of trying to figure out capabilities that will enhance the company as well.

It's such a huge competitive advantage, and I think we're starting to see some of the separation from those that can and those that cannot. You look at the performance of companies, and you can start to feel in the industry who is at the tip of the spear and really being creative and taking that first step. And they are starting to build a moat a bit around their business, no doubt.

PE: PwC's recent Behind the Numbers 2027 report projects commercial medical cost trends reaching roughly 9% in the U.S. — the highest level in nearly two decades — driven by five “inflators” that you identified (specialty medicines and GLP-1 expansions, provider reimbursement pressures, AI-enabled documention and coding, behavorial health, the No Surprises Act independent dispute resolution arbitration process). What are a couple of your big takeaways from the findings?

Hunzinger: I think the biggest thing when we take a step back is this idea of why do we think health will transform and why do we need it to in the next 10 years.

We talked about technology. We talked about understanding the human body better than we ever have. But the third one is really the cost trend is untenable. We're at $5.5 trillion [in U.S. healthcare spending], growing at 9%. We just can't continue to afford this. And a lot of it is coming down to you and me because companies can't bear all these costs anymore. So it starts to really hit wallets now more than ever before.

And so when we unpack that, I think the biggest thing is a couple of data points around the five trillion dollars. It’s a very polarizing environment; everybody tries to point fingers at one another. The reality is our health system is in need of transformation. I think everybody would argue it's not fully fit for purpose. Like any company, you have to go through a transformation. It's hard to do that in the world of U.S. health.

That said, when we think about 55% of five-plus trillion in labor costs — physicians, nurses, admin — that's a staggering number. On the med tech side, we've seen significant increases in all of the input costs — steel, aluminum, electronics, etc. Combine that with tariffs, and so you have that sort of inflationary increase that you're dealing with, which are just natural headwinds. If you do nothing, you're going to continue to have that stuff.

Two is this idea of just the volume and utilization you get with the baby boom generation, and now in our broader future of health, 90% of the cost is chronic and mental illnesses. Think about chronic illness; if you have one ailment, you generally have multiple, and so that weight on the system is pretty severe.

So when we think about things like metabolic and the fact that with GLP-1s, the utilization is going to be so significant, the hope is, yeah, costs are rising now, but hopefully that starts to bend because we should be in a healthier place.

That's the idea. That's the hope. But in the meantime, we are seeing utilization up and innovation and the cost of innovation up. So cell and gene therapy and GLP-1s, for example, there is incredible innovation that's happening, but it comes at a cost. It's this tough dynamic to deal with. You look at the price-volume mix and another third of the mix being innovation, if you will. And that gets you to the 9% medical cost trend, which we know is untenable.

So the world of health needs to transform. We've been saying it for a long time. Pharma companies need to do things faster, quicker, and better. Technology's here. It's tough to do it in a regulated environment, but they are getting there.

I think pharma's going through the metamorphosis, which is one example of what needs to change on the cost side of the equation. Obviously, healthcare providers are a big chunk of the $5-plus trillion. And they need to go through their own metamorphosis as well, and they're starting to go through it. The good thing is you see all the great innovation now and great services for the needs we have, and all this, though, does come at a cost.

We need to transform, just to be able to pay for the innovation that's coming, which will be life-changing for Americans.

I’ve spent 30 years in health, and when people think of health, they think about the friction in it; they don't often think about the incredible innovation, the life-saving stuff.

And so if we could just take down the admin friction, a lot of that comes down to getting appointments, experience with doctors, and things like that. If we can take that down, hopefully that saves on cost, and we can then fund new innovation. We need to transform, just to be able to pay for the innovation that's coming, which will be life-changing for Americans.

PE: Is there a hope of bending the cost curve in the next couple years?

Hunzinger: The infrastructure we have around health right now is massive. When people think about health, they think about building more buildings, adding more labor. The key question is how quickly can we change that mindset to virtual by design? People say, "I'll come in to see the doctor." But a lot of times you can do things in telehealth, and I think we're starting to see that trend a little bit more and more. It's about getting to the mindset of really trying to push that.

We did a consumer health survey last year, and the biggest thing we see is the generational divide. Baby boomers trusted their doctors 85% of the time; Gen Z, 55%. Gen Z all believe in being tech-native. They trust tech companies. They already have wearables. They're already taking care of themselves a little bit better. So my hope is the demand should hopefully come down. We have to get healthier as Americans, which hopefully takes down some of the volume and ultimately bends the curve.

But that will take time. It's two sides to the equation, but I'm optimistic that generationally it's starting to bend.