Our Take
Patent cliffs are real, M&A is accelerating, but buyers are getting disciplined: acquisition premiums fell 40% in 2025, and the strategy is portfolio renewal, not panic buying.
Why it matters
Big pharma's $350 billion revenue cliff over the next few years is reshaping the biotech acquisition market. Biotech founders and investors should watch whether this disciplined M&A wave sustains or reverts to irrational bidding.
Do this week
Biotech investors: map your portfolio companies' clinical stage and exit timelines against the next three years of pharma patent expirations to identify acquisition targets before bidding wars heat up.
M&A spending surged as pharma faces historic patent cliffs
Life science M&A reached $240 billion in 2024, an 81% jump from the prior year (per EY). The first quarter of 2025 saw 130 deals valued at $82.7 billion, compared to $106.8 billion in Q4 2025 (company-reported figures). This activity is not random. Analysts attribute the spike to two conditions: biotech valuations remain reasonable relative to cash-rich balance sheets, and a wave of patent expirations is forcing big pharma to acquire their way out of revenue cliffs.
The numbers are staggering. An EY report projects that major pharmaceutical companies will lose more than $350 billion in revenue as blockbuster drugs lose market exclusivity over the next few years. Merck faces the loss of Keytruda (patent expires end of 2028), a cancer immunotherapy that surpassed $1 billion in revenue two years after FDA approval in 2014 and now treats more than 40 cancer types. Pfizer lost patent protection on Eliquis and will lose it on two cancer blockbusters, Ibrance and Xtandi, in 2026. Novo Nordisk has already seen semaglutide (Ozempic, Wegovy) lose patent protection in Canada and India this year.
In response, big pharma has accelerated acquisitions. Merck bought Terns Pharmaceuticals for an undisclosed amount in March 2025 to acquire TERN-701, a tyrosine kinase inhibitor for blood cancer. It also spent $10 billion on Verona Pharma last year for Ohtuvayre, a COPD treatment. Pfizer won a bidding war against Novo Nordisk to acquire metabolic disease-focused Metsera for up to $10 billion in November 2024. Johnson & Johnson spent $14.6 billion on Intra-Cellular Therapies for Caplyta, a bipolar depression treatment, and $3.05 billion on Halda Therapeutics for RIPTACs technology. Novartis acquired Avidity as its heart failure and asthma franchises lost exclusivity.
This mirrors 2019, when M&A reached $328 billion across more than 480 deals, largely driven by buyouts of late-stage pipelines to protect against expirations. AbbVie's $63 billion acquisition of Allergan in 2019 exemplified that wave, as Humira's patent ended in 2023.
Valuations and discipline are reshaping deal dynamics
What distinguishes this wave from 2019 is buyer discipline. Acquisition premiums dropped 40% in 2025 (per McKinsey), reflecting what the consulting firm calls a "more disciplined approach to value creation." Buyers are prioritizing long-term pipeline renewal and platform acquisitions over short-term revenue boosts. In medtech, valuations hit their lowest point since the 2008 financial crisis, forcing management teams across life sciences to rethink portfolio strategy.
Valuation gaps in artificial intelligence are also influencing targets. Buyers increasingly favor companies with AI integration; those without have suffered lower exit multiples. Yale Jen, healthcare equity analyst at Laidlaw & Company, notes that companies have "very healthy balance sheets," making M&A more manageable despite higher headline prices.
Some pharma giants are hedging through alternative strategies. Regeneron has filed more than 130 patent applications around Eylea, with 91 approved, to delay generic entry. Novo Nordisk has filed hundreds of follow-on patents around semaglutide and licensed UBT251, a triple-agonist candidate, from Akero Therapeutics for $5.2 billion to compete beyond its expiring blockbuster. But the dominant strategy remains acquisition.
What acquisition targets can expect
Both early-stage and late-stage biotech companies stand to benefit. Late clinical and early commercial-stage programs address acquirers' immediate need to supplement existing disease franchises. Earlier-stage programs feed longer-term pipeline renewal. Jen predicts 2026 could be the second most active M&A year in recent history.
Biotech investors have been "nicely rewarded" by M&A premiums embedded in exit valuations, according to Jen. However, the decline in premiums means founders should anchor expectations to pipeline strength and market opportunity, not historical valuation multiples. The patent cliff is real, the urgency is real, but the irrational bidding wars of 2020-2022 are unlikely to return.