Q&A: Biotech and life sciences M&A in 2026
July 2026 | SPECIAL REPORT: HEALTHCARE & LIFE SCIENCES SECTOR
Financier Worldwide Magazine
July 2026 Issue
FW discusses biotech and life sciences M&A in 2026 with Lain Anderson at L.E.K. Consulting, Marie L. Gibson at Skadden, Arps, Slate, Meagher & Flom LLP, and Frank Aquila at Sullivan & Cromwell LLP.
FW: Given the market’s strong fundamentals but slower‑than‑expected deal execution so far, where exactly do you believe we are in the current M&A cycle for biotech and life sciences? What indicators are signalling whether anticipated deal activity fully materialises?
Anderson: The notion that biotech M&A has been ‘slower than expected’ was accurate in early 2025, but it is increasingly outdated. Regulatory uncertainty, Food and Drug Administration leadership turnover, tariff concerns and drug-pricing debates contributed to a cautious first half. As those headwinds eased, activity accelerated sharply, and momentum has carried into 2026, with 19 transactions valued at more than $1bn announced by the end of May. In my view, we remain in the early stages of a multi-year, structurally driven M&A cycle rather than approaching a peak. More than $300bn of branded pharmaceutical revenue is expected to face loss of exclusivity by 2030, creating a growth gap that large-cap companies cannot fill organically. Key indicators I am watching include strategic buyer balance sheets, access to capital, initial public offering (IPO) market strength and broader macroeconomic stability. Barring a major external shock, the conditions supporting deal activity appear durable and likely to persist for years rather than quarters.
Aquila: We are in the late coiled spring phase, fundamentals are loaded, but the trigger has not fully released. Balance sheets among large-cap pharma remain extraordinarily strong, the strategic logic for dealmaking is unambiguous given looming exclusivity losses, yet execution has lagged the consensus narrative. That gap tells you the constraint is psychological and structural, not financial. The indicators I watch most closely: the bid-ask spread between buyer and seller valuation expectations, the pace of late-stage clinical readouts that de-risk assets, and the tone of antitrust commentary out of Washington and Brussels. When we see premiums compress toward the high-20s and boards stop waiting for ‘one more data point’, that is the signal the cycle has turned from anticipation to deployment. We are closer to that inflection than the muted first-half tape suggests.
Gibson: We have seen more selective biopharma transaction activity after a very busy year in 2025. Momentum has continued in 2026. The strategic need for biotech and life sciences deals is still here, especially as large pharmaceutical companies face meaningful patent cliffs. Buyers remain interested, but they are taking more time on diligence, valuation and evaluating regulatory risk – including shifts in US policy related to drug pricing – and they are being more surgical about which assets justify a premium. Deal flow behind the scenes nonetheless remains robust. Oncology appears to be a top focus in announced deals, given high revenue potential for those drugs.
FW: How are large‑cap buyers balancing the urgency created by the patent super‑cliff with the need for discipline around pricing premiums for late‑stage and launch‑ready assets?
Aquila: The super-cliff creates a genuine forcing function, with roughly $200bn of revenue-facing exclusivity loss this decade concentrating the mind. But urgency has never been a licence for indiscipline and the best acquirers know it. What I am seeing is a bifurcation in how that tension is managed. For truly scarce, launch-ready assets that plug a specific revenue hole, buyers will pay full freight, because the cost of inaction is existential and quantifiable. For everything else, discipline reasserts itself through structure rather than headline price, milestones, contingent value rights (CVRs) and staged consideration that shift risk back to the seller. The sophisticated buyer is not choosing between speed and discipline; they are using deal architecture to have both. The danger is the board that confuses a strategic imperative with a mandate to overpay for optionality it cannot underwrite. At the moment I am not seeing that.
Gibson: There are certainly real concerns of the ‘patent super-cliff’, but that has not eliminated pricing discipline for buyers. This current patent cliff reportedly includes high complexity biologics, rare disease therapeutics and specialised oncology assets. Buyers are focused on assets that can address a clear business need within a defined timeframe. The strongest interest is still around late-stage, launch-ready or commercial-stage assets, where the regulatory path and revenue profile are easier to assess. Buyers appear to be less willing to stretch on valuation for earlier-stage stories that may be scientifically promising but carry more execution risk. We are also seeing companies use smaller acquisitions, licensing arrangements and option-based structures to spread risk and preserve flexibility. The pressure to replenish pipelines is real, but boards still look for a clear rationale, manageable integration risk and a credible path to value.
Anderson: Large-cap buyers are balancing urgency and discipline by raising the bar on commercial probability of success. For a company with more than $50bn in revenue, an asset needs to have a credible path for $3bn to $5bn or more in peak sales to truly move the needle. As a result, buyers are still willing to pay full premiums, but only for assets that are clinically derisked and commercially differentiated – clear unmet need, a realistic payer pathway and a product profile strong enough to persuade physicians to switch patients. What they are less willing to do is overpay for late-stage assets that are merely incremental or ‘me too’. The patent cliff creates real urgency, because missing the next Darzalex or Keytruda would be costly.
“The strategic logic for dealmaking is unambiguous given looming exclusivity losses, yet execution has lagged the consensus narrative.”
FW: In an industry defined by rapid innovation cycles, how should organisations balance the need for strategic acquisitions with the equally critical need to invest in internal research & development and long term capability building?
Anderson: This balance between strategic acquisitions and investment in research & development (R&D) is often framed as a trade-off, but the most successful companies treat it as a barbell strategy. They invest aggressively in internal R&D, where differentiated, first-in-class science is created, while using M&A selectively to fill portfolio gaps, access new platforms and accelerate growth. One should complement the other, not substitute for it. The historical data generally supports this approach. Internally developed assets have typically generated greater long-term value than acquired ones. Companies run into trouble when their innovation engines weaken and they become overly reliant on acquisitions, often competing for consensus assets in crowded therapeutic areas at full valuations. At today’s scale, neither a purely organic nor purely inorganic strategy is sufficient. Sustainable success requires both – strong internal science to create differentiated opportunities and disciplined M&A to add speed, scale and strategic flexibility.
Gibson: Strategic acquisitions can accelerate access to breakthrough science, but sustainable growth strongly benefits from maintaining robust internal R&D engines. Many acquirers today are not buying to fill gaps – they are buying to amplify existing strengths. We have seen a shift toward acquisitions that deepen platform expertise or therapeutic focus rather than scattershot diversification into unrelated modalities. At the same time, the most competitive companies are making significant bets on next-generation capabilities – artificial intelligence (AI)-enabled discovery, advanced manufacturing, translational and digital medicine – that are expected to compound in value over time and create durable advantages.
Aquila: M&A and internal R&D are not substitutes – they are necessary complements operating on different time horizons and risk profiles. Acquisition buys derisked, near-term revenue. Internal R&D builds the institutional muscle, platform knowledge and scientific culture that makes a credible acquirer in the first place. Companies that erode are those that let dealmaking become a crutch for a hollowed-out research engine, because eventually they are buying assets they no longer have the in-house expertise to develop or integrate. My counsel to boards is to treat capability-building as the non-negotiable base layer and M&A as the accelerant on top. The firms compounding value over decades are ambidextrous: disciplined buyers and patient builders simultaneously.
FW: To what extent is innovation sourcing shifting outside the US – particularly toward China and other emerging biopharma hubs? How are companies structuring cross‑border ‘licensing‑to‑M&A’ pathways to manage geopolitical, regulatory and integration risk while retaining strategic optionality?
Gibson: Innovation sourcing has become meaningfully more global over the last several years, and China and other markets have become an increasingly important source of biotech innovation, particularly in oncology, antibody-drug conjugates and other advanced modalities. There have been many recent licensing arrangements for Chinese assets with large-cap pharma companies. Concurrently, geopolitical tensions and regulatory scrutiny are shaping how these deals are structured. Rather than pursuing an outright acquisition, many companies instead consider regional licensing deals, co-development arrangements or option-based structures. These deal formats provide flexibility while reducing some execution risk. They also allow buyers to assess clinical performance and operational fit prior to a full acquisition, if that is desired.
Aquila: The shift is real and accelerating. Chinese biotech in particular has moved from fast-follower to genuine source of differentiated, clinically validated assets, often at valuations that look compelling against domestic comparables. Western pharma has noticed, and the licensing to M&A pathway has become the dominant risk-managed entry point. The structure is elegant: an initial licence or option grants commercial access and a window to observe data and integration dynamics, with prenegotiated buyout mechanics that convert to full ownership once geopolitical and regulatory uncertainty resolves. That staging is precisely the point – it preserves strategic optionality while limiting exposure to Committee on Foreign Investment in the United States-style review, evolving foreign direct investment (FDI) regimes, and the integration complexity of cross-border science. The acquirers winning here treat the licensing phase not as a hedge but as active diligence on jurisdictions where the rules are still being written.
Anderson: Innovation sourcing is shifting toward China faster than many in the industry expected. Chinese-origin assets have grown from a relatively small portion of global business development activity to a significant share of licensing transactions, driven in part by the speed and efficiency with which many programmes move from discovery into the clinic. Importantly, the dominant model is not outright acquisition but licensing and co-development. In many cases, Chinese biopharma companies retain domestic rights while licensing ex-China rights to a global partner with development, regulatory and commercial capabilities across major markets. Bristol Myers Squibb’s recent collaboration with Hengrui is a good example – a multibillion-dollar partnership centred on joint discovery and ex-China rights rather than a full acquisition. These structures help manage geopolitical, regulatory and integration risk, while preserving strategic optionality. If clinical data continue to mature positively, a licensing relationship can evolve into a deeper strategic partnership or, in some cases, an acquisition.
FW: What strategic or structural innovations – such as royalty structures, contingent value rights, joint ventures and licensing‑first models – are proving most effective for bridging valuation gaps between buyers and capital‑constrained biotech sellers?
Aquila: When sellers are capital-constrained and public-market validation is thin, structure does the work that consensus pricing cannot. CVRs remain the most powerful tool since they let buyer and seller agree to disagree on probability-weighted outcomes by tying consideration to defined clinical or regulatory milestones, effectively splitting the difference on disputed value. Royalty and synthetic-royalty structures are increasingly attractive for sellers who want non-dilutive capital without surrendering control, and for buyers who want exposure without full balance-sheet commitment. Licensing-first models with embedded buyout options are doing the heaviest lifting in this market, because they convert an unbridgeable valuation gap into a sequence of smaller, data-gated decisions. The unifying principle: when a price cannot be agreed today, agree on a mechanism that prices the asset as reality unfolds.
Anderson: It is important to distinguish between structures used to complete acquisitions and those used to finance growth. When a strategic buyer decides to acquire a company outright, the preference is usually for simplicity. Buyers generally want clean ownership and clear economics. CVRs can help bridge a modest valuation gap, particularly when future clinical or regulatory milestones remain uncertain. However, public markets often assign limited value to those contingent payments, which is one reason acquirers tend to favour straightforward cash consideration whenever possible. Royalty and synthetic royalty structures serve a different purpose. They are more commonly used by capital-constrained biotechs seeking non-dilutive financing, often from specialist royalty funds rather than strategic acquirers. Increasingly, licensing-first and co-development models have become the most effective mechanism for bridging valuation gaps.
Gibson: Strategic transaction structures play an important role in bridging valuation gaps between strategic buyers and capital-constrained biotech companies. The right structure will depend on the deal, and will be impacted by an environment impacted by elevated interest rates, tighter financing and cautious capital deployment. Given this background and the uncertainty around clinical outcomes and regulatory timelines, many acquirers have been reluctant to commit significant upfront capital without additional risk-sharing mechanisms. Structures such as CVRs, milestone-based earnouts, royalty arrangements and option to acquire frameworks are common in biotech deals. These tools help tie part of the value to future performance, whether that is clinical progress, regulatory approval or commercial launch. In some situations, licensing-first models or joint ventures can also be effective, particularly where the science is attractive but the gap between buyer and seller expectations is still too wide for a traditional acquisition. However, these structures do require careful negotiations around milestone definitions and governance rights.
“Capital markets conditions definitely affect the pace of biopharma M&A – influencing valuations, sentiment and access to capital.”
FW: How materially is AI changing the way biotech and life sciences acquirers conduct target identification, technical diligence and pipeline modelling? Where are you seeing AI genuinely shorten timelines rather than simply repackage existing processes?
Gibson: AI is reshaping dealmaking across all industries, not just biotech and life sciences. Where we have seen AI delivering real value is in the early stages of deal work – scanning broader target universes, flagging competitive intelligence faster and accelerating preliminary technical diligence. As the technology continues to mature, AI will only become more integrated into deal processes. That said, we do not think AI is replacing scientific, commercial or legal judgment. The companies getting the most value from AI are using it to support existing processes and improve prioritisation, rather than treating it as a standalone substitute.
Anderson: AI is genuinely useful at the front end of the M&A process and, in my view, somewhat oversold in many other areas. Where it creates real value is in landscape scanning, target identification and information synthesis. AI can review thousands of publications, conference abstracts, patents and clinical trial records far faster than a team working manually. A landscape assessment that once took six weeks may now take two. Where I remain more cautious is the high-judgment work that ultimately determines whether a deal succeeds. AI can build a model in minutes, but the quality of the output still depends on the assumptions underpinning it – market size, patient segmentation, competitive dynamics, pricing, access and adoption. If those inputs are flawed, the result is simply a more efficient path to the wrong answer. The areas that continue to require significant human judgment include assessing commercial differentiation, understanding market-access dynamics and evaluating integration risk.
Aquila: AI is genuinely reshaping the front end of the deal funnel. For example, with target identification and landscaping, the use of machine learning across patent filings, clinical databases and scientific literature surfaces non-obvious candidates and competitive threats in days rather than the weeks a traditional team would need. Technical diligence on large datasets, mining trial data for safety signals or efficacy patterns a human reviewer might miss, is another area of authentic acceleration. However, in terms of pipeline valuation and probability of success modelling, AI may sharpen inputs but judgment calls remain irreducibly human. An honest assessment is that AI compresses the discovery and pattern-recognition phases meaningfully, but it has not yet displaced the seasoned judgment that determines whether a deal actually closes or should.
FW: With regulatory authorities intensifying antitrust and foreign direct investment scrutiny, how are dealmakers redesigning cross‑border transaction pathways to preserve speed‑to‑close and reduce execution risk?
Anderson: What we are seeing is that deal structures have evolved in response to heightened regulatory scrutiny. The shift toward smaller bolt-on acquisitions and earlier-stage assets is driven not only by strategy but also by execution considerations. It is generally more difficult for regulators to argue competitive harm in transactions involving non-overlapping or pre-commercial assets. In cross-border transactions, FDI reviews and supply chain security concerns are often more significant sources of friction than traditional antitrust issues. As a result, companies are increasingly using structures such as ex-China licensing arrangements, regional partnerships and other intermediate models that reduce regulatory complexity while preserving strategic access to innovation. They are also engaging regulators earlier in the process and placing greater emphasis on supply chain resilience and operational sovereignty.
Aquila: Regulatory intensity has fundamentally changed deal choreography. The close of a deal is now designed from the first day of negotiation, not the last. The redesign shows up in several ways. As I have long counselled, deal teams are frontloading antitrust and FDI analysis into the target-selection phase, screening out assets likely to trigger protracted review before resources are committed. We are seeing more sophisticated risk-allocation in the documents themselves – divestiture commitments, reverse break fees calibrated to regulatory risk and longer outside dates that acknowledge reality rather than fight it. On cross-border deals, licensing to M&A staging doubles as a regulatory derisking tool, sequencing the transaction so scrutiny attaches to a smaller initial footprint. The premium today is on certainty of close, and buyers will increasingly pay, in price or structure, for a counterparty’s credible path through the regulatory thicket.
Gibson: Regulatory scrutiny remains a central consideration in cross-border biotech transactions, particularly in areas involving sensitive technologies. We have seen an increase in companies pursuing partnerships, minority investments, regional licensing agreements or option-based acquisition structures before committing to full-scale mergers. These approaches can help limit some of the regulatory exposure while preserving future strategic opportunities, but parties still need to carefully navigate local regulatory regimes. In many cases, companies are engaging regulators earlier in the transaction timeline to avoid delays later in the process.
“As genuinely novel targets become harder to find, differentiated science will continue to command premium valuations.”
FW: How decisive are capital markets and financing conditions in unlocking the next leg of biopharma M&A? Do interest rates and risk appetite need to ease further for activity to materially accelerate and for generalist capital to flow back into the sector?
Aquila: Financing conditions are necessary but not sufficient to unlock the next leg. Large-cap strategic buyers are sitting on the cash and credit capacity to transact regardless of where rates settle. Their constraint has never been the cost of capital. The real lever is risk appetite and the return of generalist capital to the sector, and that is more sentiment-driven than rate-driven. When the SPDR S&P Biotech ETF sustains a recovery and crossover investors re-engage, it reopens the IPO and follow-on markets that give smaller biotechs an alternative to selling at distressed valuations, paradoxically making them more confident, more willing counterparties. So yes, easing helps at the margin, but I would watch fund flows and the biotech equity tape more than the Federal Reserve. Activity accelerates when generalists decide the sector’s risk-reward has turned, and that is a confidence event as much as a monetary one.
Gibson: Capital markets conditions definitely affect the pace of biopharma M&A – influencing valuations, sentiment and access to capital. Higher borrowing rates and tighter financing conditions tend to slow activity, just as they do across most M&A. But that pressure cuts both ways – the same environment that may cool large-cap dealmaking can push smaller companies toward partnerships and exits, creating opportunity across therapeutic areas. Biopharma M&A does not wait for perfect conditions. The focus should be on helping clients navigate whatever market they face, rather than timing the cycle.
Anderson: Capital markets determine the velocity of biopharma M&A, not the underlying need for it. That need is structural and driven by looming patent expirations, portfolio gaps and long-term growth requirements. Companies cannot simply wait for a perfect financing environment before acting. What has changed is that the financing backdrop has already shifted from a headwind to a tailwind. That improvement was a precondition for the recent acceleration in deal activity, not a consequence of it. Biotech valuations have recovered significantly from their 2025 lows, strengthening both acquirers’ stock currency and targets’ access to capital. The IPO market has also reopened. The successful launch of large offerings, including Kailera’s record-setting biotech IPO this spring, gives sellers a credible alternative to a sale, which in turn increases competitive pressure on buyers.
FW: Looking ahead, which therapeutic areas, modalities or platform technologies appear most likely to attract premium M&A interest? What makes them stand out amid increasingly selective capital deployment?
Anderson: I expect premium M&A interest to concentrate in therapeutic areas with large patient populations, significant unmet need and the potential for long-term treatment. Cardiometabolic disease remains the most obvious focus, but I would also highlight neuropsychiatry, women’s health, and broader healthy ageing and consumer health adjacencies. Johnson & Johnson’s recent push into the central nervous system market is an early indication of where strategic interest may be heading. From a modality perspective, I am largely agnostic. Small molecules, biologics, peptides and antibody-drug conjugates can all create substantial value when matched to the right target and disease area. The notable exception remains cell and gene therapy, where manufacturing complexity and cost of goods continue to constrain commercial scalability. What increasingly separates winners from the rest is differentiation. As genuinely novel targets become harder to find, differentiated science will continue to command premium valuations, while crowded best-in-class opportunities face increasing pricing pressure. That scarcity is likely to support premium valuations for years to come.
Gibson: Crystal balls aside, oncology remains a perennial driver of biotech M&A and shows no signs of slowing. Obesity and metabolic disease assets are attracting intense interest as acquirers jockey for position in what appears to be a durable, high-growth market. Neuroscience, immunology and cardiovascular therapeutics continue to command attention, particularly where differentiated clinical data or broader platform applicability sets an asset apart. We are also seeing growing appetite for enabling technologies – such as AI-driven drug discovery and advanced manufacturing capabilities – that may offer acquirers options across multiple programmes rather than a single product bet.
Aquila: Capital is deploying with surgical selectivity, and premiums are flowing toward platforms with demonstrated clinical validation and broad applicability rather than single-asset bets. Metabolic disease, the obesity franchise, remains the gravitational centre, with adjacent cardiometabolic plays behind it. In oncology, the antibody-drug conjugate and radiopharmaceutical spaces command outsized interest because they pair proven mechanisms with deep, expandable pipelines. On the modality side, anything that credibly extends the reach of validated biology stands out. What unites the winners is optionality: buyers will pay premiums for a validated platform that generates multiple shots on goal, and discount sharply for a binary asset, however elegant the science.
Lain Anderson is a managing director and Americas healthcare sector co-head at L.E.K. Consulting LLC, based in Boston, where he has advised biopharma and life sciences clients since 2005. His work spans corporate growth strategy, R&D portfolio prioritisation, product commercialisation, business development and transaction diligence. He can be contacted on +1 (617) 951 9500 or by email: l.anderson@lek.com.
Marie L. Gibson concentrates primarily on M&A and general corporate matters. She has represented acquirers, targets and financial advisers in US and international deals, including public and private transactions as well as negotiated and contested acquisitions. Ms Gibson regularly advises on corporate governance matters and proxy contests, assists distressed businesses and provides counsel on other general corporate matters. Although her practice is broad-based, she has extensive experience in the healthcare industry. She can be contacted on +1 (212) 735 3207 or by email: marie.gibson@skadden.com.
Frank Aquilla is Sullivan & Cromwell’s senior M&A partner and has served the firm in numerous senior management positions, including as a member of the management committee, as global head of the M&A practice and as co-managing partner of the general practice group. As a leader in his field, he has advised numerous clients in many of the largest and most important global transactions that have been transformational across a range of business sectors. He can be contacted on +1 (212) 558 4048 or by email: aquilaf@sullcrom.com.
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