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Biotech and pharma M&A will increase in 2025

Biotech and pharma M&A will increase in 2025

The New York Stock Exchange welcomes Johnson & Johnson (NYSE: JNJ) on December 5, 2023.

NYSE Group

A version of this article first appeared in CNBC’s Healthy Returns newsletter, which brings the latest health news straight to your inbox. Subscribe here to receive future editions.

I’m back in New York City after spending almost a week in San Francisco for the annual JPMorgan Health Care Conference – the largest gathering of biotech and pharma executives, investors and analysts (and of course health reporters) in the US.

The week included questions about the new Trump administration, updates on business prospects and drug portfolios, increased local security and, for the first time in recent memory, sunny weather in San Francisco.

The news came throughout the week, even after the conference ended in mid-Thursday. The Biden administration on Friday announced the next 15 drugs that will be included in Medicare pricing negotiations, including: Novo NordiskOzempic, the blockbuster diabetes drug from , and its anti-obesity counterpart Wegovy.

But with companies announcing a handful of deals last week, I’ll focus on some insights for M&A activity in the industry in 2025.

M&A appears to be off to a good start this year. But the question is whether it will last.

In particular, some of the deals announced during the conference caused optimism Johnson & Johnsonhas proposed a $14.6 billion acquisition of Intra-Cellular Therapies. This appears to be the largest transaction we have seen in the pharmaceutical industry since 2023. This agreement came amid a wave of smaller deals from GSK, Eli Lilly and lesser-known radiopharmaceutical companies.

“That’s five deals in a business day and a half,” Stifel analyst Tim Opler said in an email to clients last week. “This will be a very different year for M&A than 2024.”

According to EY’s M&A Firepower report released last week, the past year was marked by smaller and smarter deals in the pharmaceutical industry. Big pharmaceutical companies sought cheaper deals on early-stage products and companies that could pay better dividends in the long run.

Although this year has started with more activity, the report points to possible limitations on mergers and acquisitions in 2025: ongoing margin pressure on biopharma companies “is still reducing the appetite for big spending,” and the industry’s most valuable acquisition targets remain foreground high premiums in the market, among other factors that could dampen transactions.

Traders work on the floor of the New York Stock Exchange under screens displaying the Pfizer company logo shortly after the opening bell in New York on March 11, 2016.

Lucas Jackson | Reuters

This applies to some large pharmaceutical companies.

During a presentation at the conference after J&J announced its intracellular therapies deal, J&J CEO Joaquin Duato said, “For us, larger deals tend to be outliers.”

“The majority of the value we create comes from smaller deals and partnerships where we can leverage our scale,” Duato said, pointing to the 75 smaller deals J&J closed last year.

However, the EY report said there are “strong structural reasons to expect a return to doing business,” including the $1.3 trillion industry’s “firepower,” which refers to the ability to conduct transactions to finance and conclude deals.

Big pharmaceutical companies are also preparing for upcoming drug patent expirations that could result in $300 billion in lost sales by 2028, increasing pressure on them to make up for losses with new products.

PfizerFor example, the company faces a wave of patent losses in the next few years that could jeopardize annual sales of about $17 billion to $18 billion, the company’s CEO Albert Bourla said during a presentation at the conference. But Bourla said the company’s series of deals in recent years, such as its acquisition of cancer drug developer Seagen, should help offset those losses.

According to the EY report, the Trump administration could also provide “significant tailwinds” to the industry by cutting corporate taxes or changing FTC policy “as part of an overall deregulation shift.”

But we’ll have to see how this all plays out later this year.

Feel free to send tips, suggestions, story ideas and data to Annika at annikakim.constantino@nbcuni.com.

The Latest in Health Tech: Digital Healthcare Fundraising Defined by “David-and-Goliath Dynamics” in 2024, the Report Says

Now that JPM has ended, 2025 officially begins for the healthcare sector. But we can’t dive into the year ahead without first taking a look at the digital health venture funding landscape in 2024.

Overall, it was a year of haves and have-nots.

Digital health startups in the U.S. raised $10.1 billion through 497 deals last year, according to a new report from Rock Health. That total fell from $10.8 billion in 2023 and, adjusted for inflation, is roughly equal to the $8.2 billion raised before the pandemic in 2019. Last year, digital health M&A transactions hit a decade low as the segment closed just 118 deals.

An increase in early-stage fundraising activity as well as smaller late-stage deals accounted for the lower investments in 2024, Rock Health said. That could spell trouble for late-stage startups that raised money at sky-high valuations during the coronavirus crisis, potentially pushing them to make acquisitions in 2025 or shut down operations altogether.

Additionally, large megafunds, health systems and technology companies will have an outsized impact on digital health in 2024, Rock Health said. For example, venture capital firms Andreessen Horowitz and General Catalyst, which secured 20% of total committed LP capital in the US in 2024, were the top investors in the sector.

And while artificial intelligence has still been a hot area of ​​investment in digital health, it is becoming increasingly difficult for startups to beat large incumbents. Rock Health said technology companies like Microsoft that can afford to build and maintain expensive basic models are leading the way in healthcare AI, as are organizations like Epic that can deploy applications of these models across the enterprise.

There’s still room for smaller AI startups to find a niche in healthcare, but Rock Health said they need to “think carefully about their positioning.”

“These dual trends – early-stage startup activity amid big moves by major healthcare players – have created a David and Goliath dynamic in the healthcare innovation landscape,” Rock Health said.

If JPM was any indication, we’re in for another interesting year in digital health. We’ll see what 2025 has in store.

Read the full report here.

Feel free to send tips, suggestions, story ideas and data to Ashley at ashley.caroot@nbcuni.com.

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