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2025 should be an active year for the biopharma and medtech sectors
The volume of mergers and acquisitions (M&A) activity in the pharmaceutical and life sciences (PLS) industry in 2024 was healthy compared to historical levels, but companies have largely been active with smaller deals driving overall deal values down. Beginning with the first of several anticipated rate cuts by the Federal Reserve and following through to the implications of the recent election, the market has begun to see resolution to some of these challenges and we expect it will drive deal values and volumes higher in 2025. We expect transactions between $5 billion and $15 billion to see sustained activity while recognizing geopolitical factors that could bring headwinds.
We expect to see this activity across each of the subsectors:
- Pharma: Pharma continues to see significant loss of exclusivity gaps in their product pipelines that will need to be filled soon. The potential for a change in the perspectives of anti-trust regulators could give them more confidence in their ability to close the larger deals needed to fill these gaps. Further, the sheer size of the cardio-metabolic market following the success of GLP-1s in 2024 will make it a therapeutic area that players will want to be in. Companies that weren't first movers will be looking for entry points through M&A to supplement potential in-house clinical development pathways.
- Medtech: While deal value recovered from the lows seen in 2023, deal volume in the subsector remained relatively low. We anticipate a recovery in M&A may bring with it increased deal volume in emerging categories such as robotics, data and AI as medtech companies seek to reposition and reinvent their business models.
- Biotech: Despite the challenging funding environment in recent years, many early to mid-stage biotech companies continue to innovate and have become attractive buyout targets for larger players in the sector. Signs of a reopening of the IPO market also bode well for the subsector as the continued funding of R&D activities is critical to getting their products to market. We expect areas such as radiopharmaceuticals and immunology to see healthy activity and expect that the nascent trend of China-to-the-West licensing deals will continue given the quality of clinical innovation in China and the impacts of the Biosecure Act.
- Services/Other: Even though contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs) remain interesting candidates for private equity (PE) investment, 2024 saw renewed interest in consolidation within the subsector as participants look for unique capabilities and specialty niches that can help accelerate time to market.
Note: The primary M&A data source used in the 2025 outlook is S&P Capital IQ.
New administration could drive significant regulatory shifts
Following the results of the US election that gave control of the White House and both houses of Congress to Republicans, significant shifts in regulatory policy across multiple areas could drive changes in the sector. Many expect changes in leadership at the Department of Justice (DOJ) and Federal Trade Commission (FTC) to resolve some of the concerns that prevented larger deals from happening over the last few years. While some observers question whether the focus on easing government regulations will extend to the Federal Drug Administration (FDA), many are beginning to plan for new tariffs and other regulatory policy actions that could restrict multinational supply chains and cross border investment, such as the Biosecure Act.
“Innovation in key areas of unmet medical need continues to be plentiful and corporate firepower is abundant. We expect 2025 to be an active year for M&A.”
The bottom line
With a confluence of factors pointing towards significant deal opportunities in 2025, industry players must remain agile and ready. The ability to quickly access and deploy capital will be critical as we expect competition to be fierce for the highest potential therapeutic classes and areas. Companies with the resources and playbooks needed to efficiently evaluate targets will be at a significant advantage.
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