In the latest installment of the Morgan Lewis M&A Academy, partners Laurie Burlingame and Luciana Griebel provided an overview of current market trends in mergers and acquisitions (M&A) and strategic partnerships within the life sciences sector. While a few multi-billion-dollar deals stood out in 2024, the pace of large life sciences transactions slowed considerably. Life sciences M&A fell 41% in value in 2024 compared to 2023, as life sciences companies focused on smaller and mid-sized deals, according to EY’s M&A Firepower Report 2025. While 2025 was off to a promising start—with four billion-dollar deals announced on the first day of the J.P. Morgan Healthcare Conference in January—the overall pace of M&A deals over the first quarter of 2025 was slower than many anticipated.
As the first quarter comes to a close, we take a look at what lies ahead for the rest of 2025 and the key factors to consider when navigating deals in this unique and dynamic sector.
Anticipated Trends for 2025
- Expect a steady increase in biopharma dealmaking, as the industry reaches the much-anticipated “patent cliff” and large pharma companies work to replenish their drug pipelines.
- The sector continues to retain suitable levels of capital that can be deployed for M&A.
- The market is likely to see a rise of dual-track processes for private biotech companies, combining M&A and initial public offering preparations on parallel tracks.
- There is a steady increase in strategic transactions that combine M&A elements with partnerships and co-commercialization terms, along with spinoffs, options, and other creative mechanisms to de-risk development and target the right assets for future growth.
- GLP-1s and artificial intelligence will remain important target areas for dealmaking.
- Companies will need to continue to evaluate how the US administration’s policies and priorities will affect the sector, including those related to tariffs, staffing levels at federal agencies, decreased levels of funding for the National Institutes of Health, drug pricing, and renewed focus on anticompetition review.
- Inflationary concerns continue in the US market with interest rates remaining high. The timing and frequency of interest rate decreases will likely affect timing of dealmaking.
Life Sciences Deals Are Unique
The combination of unique assets developed by life sciences companies and the complex, multifaceted ecosystem in which these companies operate makes life sciences deals inherently different from those in other sectors. These differences also include the multiple layers of intellectual property ownership, the challenges of determining and agreeing a valuation, the focus on strategic partnerships, and the involvement of specialized regulatory and scientific expertise. Understanding these dynamics is crucial for anyone involved in life sciences transactions, whether as investors, executives, or legal advisors.
Our key takeaways for in-house counsel pursuing M&A in the life sciences sector include the following:
- Structure deals to address valuation gaps. Significant binary value outcomes encourage the use of contingent consideration structures in life sciences M&A. In private company transactions, this is generally handled through earnouts, while in public company transactions, parties should consider spinouts and contingent value rights to deal with valuation issues. Upstream financial obligations are critical to understand and model, as they will flow down to the buyer, unless agreed otherwise.
- Assess foreign investment review risks early in the transaction process. Foreign direct investment (FDI) continues to expand, with jurisdictions across the world implementing regulatory frameworks to control foreign capital flowing into life sciences companies. Navigating the FDI landscape requires a detailed understanding of local regulations, sector-specific restrictions, and evolving compliance requirements. Meaningful pre-notification engagement with the relevant government agencies to confirm filing requirements and potential issues early on is critical.
- Due diligence is paramount. A key differentiator for life sciences M&A is the complexity of the due diligence exercise, which is especially critical in cases where most of the value of a company is linked to an intangible asset. It is common for buyers to conduct specialized due diligence in multiple areas, including for intellectual property, regulatory and reimbursement, product liability, data privacy and compliance. Sophisticated legal counsel can add real value to the process, prioritize the key issues, and provide creative solutions.
- Consider flow down obligations and how these could impact a future sale. Multiple commercial agreements are entered into over the lifecycle of a product. Upstream agreements that include flow-down obligations take center stage during due diligence, as buyers are focused on the obligations that attach to the assets and would remain in place after closing. When companies enter into such agreements, they should think ahead of how certain obligations will be viewed by a potential buyer.
- Option deals on the rise. With the rise of deals that include an option to acquire the target at some point in the future, parties need to be mindful of working together for a considerable time, prior to the exercise of the option. Early-stage companies should not underestimate the cultural shift when working with a large organization. However, the benefits of such a partnership will outweigh the administrative burden.
- Determine the need for protection against partnership changes. Given the constant innovation and steady flow of M&A and partnership deals in the life sciences industry, remember that a partner may not be a partner next year, so it is wise to plan accordingly.
- Seek guidance from trusted counsel. A strong team of lawyers with deep life sciences experience will be key in identifying the issues as well as offering valuable solutions to sector-specific risks.