Government Cuts Spark Potential M&A Surge in Pharmaceutical Industry

FDA Funding Reductions Create Pressure on Biotech Companies

President Donald Trump's recent budget cuts to the Food and Drug Administration (FDA) and the National Institutes of Health (NIH) are having unexpected ripple effects throughout the pharmaceutical industry. These reductions, particularly in FDA staffing, are placing significant pressure on biotech companies, especially those with limited financial resources.

Andrew Goodman, a partner in the M&A practice at business law firm Paul Hastings, notes that the staff reductions at the FDA are causing delays in trial reviews and inspections. "When time periods for trials, reviews, inspections that might be specific to a certain biotech get elongated, you're basically throwing out your existing cash runway timelines and you've got to come up with new ones," Goodman explained.

These extended timelines for FDA reviews could add months to a company's plans for drug approval, potentially pushing some biotechs to the brink of financial distress. As a result, stockholders in affected companies are urging boards to proactively recalculate cash runways and examine strategic alternatives, including potential mergers and acquisitions.

M&A Activity Shows Signs of Resurgence

Despite initial expectations that the return of the business-friendly Trump administration would facilitate M&A activity, the landscape remains complex. The President has instructed the Federal Trade Commission to continue scrutinizing deals, as it did under the previous administration.

However, there are indications that the M&A environment is opening up. According to a report from GlobalData, the value of deals in the first quarter of 2025 increased by 101% compared to the fourth quarter of the previous year. While this figure falls short of the same period in 2024, when deal values were 32% higher, it suggests a potential resurgence in M&A activity.

Ophelia Chan, an analyst at GlobalData, observed, "Apart from a flurry of large-scale deals driven by big pharma, the industry remains cautious given the uncertainty surrounding Trump's as-yet-unspecified policies. So far, the start of 2025 continues to be shaped primarily by bolt-on transactions."

Potential Surge in M&A Activity Expected

Industry experts anticipate a surge in M&A activity in the coming months, driven by several factors:

1. Financially distressed biotechs may seek partnerships with cash-rich or synergistic companies.
2. Well-funded companies may see opportunities to acquire undervalued assets.
3. Private equity firms may show increased interest in biotech companies.
4. Large pharmaceutical companies facing patent cliffs may look to refill their pipelines through acquisitions.

Goodman predicts, "I think in the second half of this year, we'll see more M&A. There's gonna have to be M&A transactions for certain companies to survive, and there's going to be acquirers who see opportunities to pounce, and they'll do it."

Ben Folwell, an analyst with Citeline, doesn't rule out a return to the large-scale biopharma deals seen in the previous Trump administration, such as Bristol Myers Squibb's $74 billion acquisition of Celgene and AbbVie's $63 billion buyout of Allergan.

As the industry navigates the uncertainties of the current economic and regulatory landscape, the stage appears set for a potentially transformative period of mergers and acquisitions in the pharmaceutical sector.