Biotech Dealmaking Slows Amid Market Uncertainty and Valuation Challenges

In a stark contrast to the optimistic predictions at the start of the year, the pharmaceutical industry is experiencing a significant slowdown in merger and acquisition (M&A) activity. Market volatility, driven by political uncertainties and potential tariffs, has created an environment of caution among both buyers and sellers in the biotech sector.

Dealmakers Face "Uncertainty on Steroids"

The pharmaceutical industry entered 2025 with high hopes for increased M&A activity, buoyed by Johnson & Johnson's nearly $15 billion acquisition of a brain drug developer in January. However, the excitement was short-lived as market turbulence, exacerbated by President Trump's return to office, has made large-scale acquisitions increasingly challenging.

Andrew Merken, shareholder at law firm Polsinelli, describes the current climate as "uncertainty on steroids," highlighting the extraordinary challenges faced by dealmakers. The volatile market has led to a more cautious approach from biotech buyers, who are now more concerned about making missteps than missing opportunities.

Valuation Disparities Hinder Deal Closures

One of the most significant obstacles in the current market is the difficulty in agreeing on valuations. Stuart Cable, global head of M&A at Goodwin Procter, notes that deals that previously took weeks to complete now require three to four months, with some billion-dollar-plus transactions initiated in January still unsigned by mid-April.

The shift in power dynamics has further complicated negotiations. While biotech companies could easily secure funding from venture capitalists or public markets a few years ago, the prolonged downturn in biotech stocks has made raising capital more challenging. This has given large pharmaceutical companies leverage in negotiations, allowing them to offer lower prices and wait for sellers to become more desperate.

Adapting to the New Landscape

Despite the challenges, dealmaking activity behind the scenes remains robust. Big pharma companies continue to rely on the biotech sector for pipeline innovation. Research collaborations have gained popularity as a lower-risk way to access innovation, with Goodwin's team specializing in these deals being "busier than ever," according to Cable.

Experts predict that deals ranging from $1 billion to $5 billion will be most attractive in the near term. This was evidenced by Merck KGaA's recent agreement to acquire cancer biotech SpringWorks Therapeutics for just under $4 billion, representing a 26% premium to SpringWork's average share price.

As the industry navigates this period of uncertainty, dealmakers are expected to acclimate to higher levels of unpredictability. However, if the current climate persists, it could have far-reaching implications for biotech investment, potentially making it an even riskier proposition than it is now.