Pharmaceutical and life sciences

In the first half of 2025, pharmaceutical and life sciences (PLS) deal activity remained relatively steady but cautious, dominated largely by bespoke, strategic acquisitions in the $1–$5 billion range. Heightened regulatory uncertainty, the most favored nation (MFN) prescription drug pricing executive order, ongoing debates about the impact of changes from the Department of Government Efficiency (DOGE), Make America Healthy Again (MAHA), the Food and Drug Administration (FDA) and other regulatory agencies have weighed on dealmakers’ confidence. These shifts have further complicated revenue forecasting and valuation modeling, leading many companies to more carefully reevaluate pipeline decisions and strategic objectives before signing new deals.

Compounding the regulatory challenges are evolving tariff policies. The US tariff landscape is marked by legal disputes, international negotiations and economic implications, leading to market volatility and global economic risk. Companies are responding with targeted mitigation strategies, including leveraging trade agreements like the United States-Mexico-Canada Agreement (USMCA) and reassessing country-of-origin determinations, while maintaining flexibility as tariff policies continue to evolve.

Note: The source used in the 2025 midyear outlook is S&P Global Market Intelligence.

Key trends over the past six months also include:

• Heightened FDA disruption — Highlighted by significant departures and policy changes within the agency, changes to regulatory processes have industry participants raising concerns about potential approval timelines and regulatory predictability impacting dealmakers’ critical assessment of the probability of technical and regulatory success (PTRS) in an M&A setting.
• Deepening ties with Chinese biotech — The substantial engagement with Chinese biotech firms, now constituting more than one-third of molecules licensed by US pharma multinationals, has brought additional scrutiny from a geopolitical and national security perspective. The rapidly evolving Chinese biotech landscape, characterized by advanced scientific capabilities and rapid execution in high-potential therapeutic modalities, underscores both opportunities and heightened risks related to IP security, regulatory compliance and strategic alignment.
• Capital markets remain cautious — Prevailing hesitancy in capital markets and elevated interest rates continue to present challenges for early-stage companies within the sector, with IPOs remaining challenging amid market volatility, regulatory uncertainties and economic headwinds.
• Activist influence — Activist investors have intensified pressures on companies to improve asset portfolios. This has led to increased divestiture activities, driven by the need to streamline operations and realign assets more closely with strategic growth areas amid the ongoing uncertainty.

Overall, we continue to believe that the near-term prospects for M&A in the sector remain robust given the pace of scientific progress, the number of upcoming new drug approvals and the level of cash on balance sheets. But dealmakers face a multifaceted regulatory and geopolitical set of challenges which require pharmaceutical and life sciences companies to demonstrate significant agility, comprehensive due diligence and strategic foresight in managing their dealmaking activities and overall corporate strategies.

In the second half of 2025, dealmakers will be closely tracking the implementation details of the MFN pricing policy and its interplay with existing provisions in the Inflation Reduction Act (IRA). Both policies could significantly affect pricing assumptions, particularly related to Medicare and Medicaid, and deal strategies.

Further uncertainty looms from organizational changes at the FDA and the Department of Health and Human Services (HHS). Restructuring and workforce reductions may disrupt regulatory timelines and data transparency standards. Companies will be preparing contingency plans for potential delays in trial oversight and submission processes.

Tariff policy also remains in flux. As exemptions narrow, a broader range of pharmaceutical products could be impacted. Companies must reevaluate supply chains, explore mitigation strategies, such as First Sale for Export, and leverage trade agreements to offset rising costs.

On the strategic front, capital allocation discipline will be critical. Companies will continue prioritizing focused, strategic acquisitions while maintaining operational flexibility to navigate cross-border complexities and regulatory risks.

With regulatory uncertainty, geopolitical tensions, and tariff volatility on the rise, success in 2025 will hinge on disciplined dealmaking, agile portfolio strategies and resilient supply chain planning. The companies that thrive will be those that balance bold innovation bets with rigorous due diligence, especially in cross-border transactions, and strategic foresight.

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