Biopharma dealmaking: predictions for 2024

The past 12 months has seen significant growth in global mergers and acquisitions (M&A) within the biopharma sector. This activity is expected to continue in 2024, with increasing need for biopharma to access innovation through collaboration and dealmaking to offset looming patent challenges.

“In 2023, total life sciences deal value increased by 34 percent to $191 billion. Biopharma represented 82 percent of this, with total spend increasing 65 percent to $156.9 billion,” states Subin Baral, EY Global Deals Leader, Life Sciences.  

This growth, he says, was driven by “big biopharma coming back to dealmaking.” They contributed approximately 69 percent of the spend in 2023 (compared to 38 percent in 2022).

Big biopharma companies executed more than ten $1-billion-plus deals in 2023.

“Oncology continued to dominate the dealmaking in terms of therapeutic area, most notably antibody-drug conjugates (ADCs), which were the key asset in three major deals,” he adds.  

Biopharma deals outlook for 2024

Looking ahead to 2024, big biopharma companies are expected to remain active in dealmaking as there is “an increasing need and urgency to access innovation through acquisitions and collaborations to offset topline pressures due to impending patent cliffs,” Baral explains.  

Referencing the EY Firepower report 2023, Baral highlights several key fundamentals that point to increased dealmaking in 2024. They are:

1. The impact of patent cliffs and potential loss of revenues for big biopharma companies
2. insufficient internal R&D pipeline assets to replenish revenues at risk, necessitating access to external innovation,
3. limited access to capital through public markets and cautious and selective investments from venture capital funds, forcing biotechs towards dealmaking.

“Despite their increased M&A activity in 2023, top 25 biopharma companies hold approximately $1.4 trillion of Firepower; hence we expect the deals to continue in 2024 and early-stage deals to make a comeback, given the very limited de-risked late-stage assets and their high valuations,” Baral says.  

From a valuation perspective, EY sees increasing use of contingent and milestone-based deal structures.

What modalities will dominate biopharma dealmaking in 2024?

Dealmaking in 2024 will extend beyond oncology, although this is expected to be the key area of activity, according to analysis from EY.  

“Given the unmet need, we expect oncology to continue to dominate dealmaking in 2024,” says Baral.

“We expect newer technology platforms such as ADCs, which have reached commercial maturity, to remain highly sought-after differentiators in this space,” he adds.

“There is also a high unmet need in the CNS space, and there have been a number positive results with respect to drug development; as a result, we expect this to be a therapeutic area with dealmaking potential,” Baral continues.

“Lastly, new markets have opened up in the areas such as anti-obesity and there may be continued activity in this space.”

Can we expect a spike in larger-scale deals in 2024?

With the patent cliff posing a significant challenge to biopharma companies, dealmaking is likely to evolve over the coming years, with bolt-on acquisitions expected to dominate.

Baral explains: “The patent cliff started to impact revenues in 2023 with further expirations anticipated in 2025-2026. We expect the growth gap to increase to $120 billion across the top 25 biopharma companies by 2028.

“There is not sufficient internal R&D for the big biopharma companies to replenish revenues. As a result, they will need to resort to dealmaking as a pathway to access pipeline or commercial assets to close the growth gaps.”

So where will the focus be?

“Companies will very likely focus on therapeutic area depth and strategic fit when making these choices and will continue disciplined capital allocation (divestment, investing and partnering) to prioritise assets and therapeutic area choices,” Baral continues.

“While we don’t say never to large scale deals, we expect bolt-on acquisitions will dominate dealmaking in 2024,” he concludes, noting that bolt-on acquisitions offer higher strategic value and total shareholder returns according to EY analysis.

Overcoming regulatory and market risks

Regulatory challenges will continue to pose significant headwinds in biopharma dealmaking in 2024, according to Baral. 

Key challenges in 2023 primarily arose from high valuations and regulatory uncertainties, both Inflation Reduction Act and antitrust in the United States.

There is also inherent risk with the existing pipeline with many promising drugs failing in late-stage trials. 

As such, Baral states: “Late-stage assets backed by clinical data will be in higher demand and command higher valuations. Less capital will be focused on early-stage assets which may allow opportunistic investments by the ‘smart money’ investors.”

He adds: “The onus will be on early-stage companies to perform early diligence and analysis of the market landscape, pricing and reimbursement prospects while developing the business case for funding. Strategic partnerships and alliances will continue to play critical roles in early-stage R&D.”