Life Sciences M&A Activity Signals Strategic Shift Toward Larger, High-Stakes Deals

The life sciences sector’s merger and acquisition landscape in 2024 revealed a striking paradox: fewer deals closed, yet companies committed billions more per transaction. While M&A deal volume declined 15 percent to 374 transactions — down from 442 in 2023 — total deal value remained robust at $152.7 billion, according to a new study from Travelers and PitchBook. More tellingly, median deal size surged 72.8 percent, signaling a fundamental shift in how pharmaceutical and biotechnology companies approach growth through acquisition.

This trend reflects an industry under mounting pressure from patent expirations, regulatory complexity, and rapid technological change. Rather than pursuing numerous smaller acquisitions, established players are making strategic bets on high-value targets that can immediately strengthen drug portfolios, expand manufacturing capabilities, or unlock cutting-edge research. The question for industry leaders is no longer whether to pursue M&A, but how to execute larger, more complex deals without succumbing to integration challenges that have derailed previous consolidations.

Strategic Imperatives Driving Consolidation

The pharmaceutical industry faces what analysts call the “patent cliff”— a wave of blockbuster drug patents expiring over the next several years that threatens billions in revenue. To offset these losses, companies are acquiring firms with FDA-approved drugs or promising late-stage candidates rather than relying solely on internal R&D pipelines. This urgency helps explain why acquisitions are becoming larger and more strategic.

The FDA approved 50 novel drugs in 2024, slightly above its five-year average of 48.8, with over half targeting rare diseases. This regulatory environment creates opportunities for companies willing to acquire specialized developers serving niche markets, where smaller patient populations can still generate substantial returns under favorable pricing dynamics.

Rising R&D costs compound these pressures. Developing new drugs in-house requires years of investment with uncertain outcomes, making acquisition of established businesses an appealing alternative for mitigating risk. The Travelers study notes that by acquiring companies with proven products or advanced-stage candidates, firms can “reduce the risks and costs associated with in-house innovation and market penetration.”

Private equity continues playing a significant role despite broader market headwinds, with 166 buyout deals completed in 2024. PE firms have particularly targeted contract research organizations and manufacturing businesses, capitalizing on industry outsourcing trends while seeking companies with strong intellectual property and scalable business models.

Artificial intelligence represents an emerging catalyst for M&A activity. AI-powered platforms are transforming drug discovery, clinical trial management, and administrative operations. As established pharmaceutical and medical device manufacturers seek to integrate these capabilities, specialized AI developers in digital healthcare become attractive acquisition targets. The study suggests that “specialized AI applications could inspire more M&A interest as established firms look to fully integrate these capabilities.”

Geographic Concentration in Innovation Hubs

M&A activity remains concentrated in established life sciences regions, with the West Coast accounting for over $77 billion in deals during 2024 — more than half of total U.S. transaction value. This geographic concentration reflects the region’s dense ecosystem of research institutions, venture capital, and specialized talent.

New England ranked second with nearly $50 billion in M&A value, bolstered by the Boston-Cambridge biotech corridor. Notably, North Carolina’s Research Triangle was the only U.S. region showing deal count growth in 2024, suggesting emerging hubs may gradually diversify the industry’s geographic footprint.

Among subsectors, biotechnology, pharmaceuticals, and drug discovery dominated transaction activity. Therapeutic devices led year-over-year M&A deal count growth at 14.3 percent, followed by biotechnology at 12 percent. This reflects growing demand for specialized medical devices as healthcare shifts toward high-impact interventions, exemplified by acquisitions of companies producing advanced cardiovascular devices and minimally invasive surgical tools.

Operational Realities Behind the Numbers

While 87 percent of life sciences risk management professionals surveyed by Travelers reported that M&A’s overall impact has been positive, the path to integration proves consistently challenging. Cultural differences and operational disruptions tied as the top future concerns, each cited by 27 percent of respondents. Financial strain and hidden costs worried 16 percent, while technology integration challenges concerned 14 percent.

The human dimension of M&A cannot be understated. Among companies that completed deals in the past five years, 65 percent experienced employee resignations, 71 percent saw leadership changes, and 64 percent reported that individual roles changed significantly. More than half (52 percent) required employees to relocate, and 44 percent conducted layoffs. These disruptions explain why talent retention ranked among the top five future risks, cited by 13 percent of executives.

One risk manager at a company with 50-249 employees noted lessons learned: “Inconsistent application of safety protocol and potential financial losses due to operational disruptions.” A CFO from a similarly sized firm highlighted that “supply chain disruptions resulting from mergers may impact purchasing materials and delivery.”

Technology integration poses particular challenges. A vice president at a company with 500-999 employees observed that “integration issues with technology, systems or company processes may take longer than anticipated.” These delays can postpone the realization of expected synergies, undermining the financial rationale for deals.

Despite these challenges, nearly all companies (97 percent) changed risk management practices following M&A transactions, with 94 percent reporting their practices became stronger. The most common changes included implementing new technology safety practices (55 percent), adopting new risk management and mitigation practices (51 percent), and engaging with new suppliers (48 percent). This suggests that while integration is difficult, companies view the process as an opportunity to strengthen operational foundations.

Looking Ahead

The trend toward larger, more strategic acquisitions shows no signs of reversing. Looming patent expirations will continue driving pharmaceutical companies to secure new revenue sources through acquisition. Simultaneously, emerging technologies like gene therapy and AI-enabled drug discovery raise the stakes for thorough due diligence, as buyers must assess not only current products but future innovation potential.

Geopolitical uncertainty and supply chain fragility are also influencing M&A strategies. The study notes that “volatility in global trade relationships is driving more companies to consider supply chain adjustments or alternative markets for stability.” Vertical integration deals — such as pharmaceutical manufacturers acquiring raw material suppliers — offer one response to these pressures.

Regulatory considerations loom large. While the FDA’s approval rate for novel drugs remains healthy, the broader regulatory environment faces potential changes that could affect deal structures and timing. Companies must balance the urgency to acquire with the need for comprehensive regulatory compliance reviews.

The life sciences sector’s M&A landscape reflects an industry in transition. Fewer but larger deals suggest a maturing market where strategic positioning matters more than sheer transaction volume. Companies that can successfully integrate acquisitions while navigating cultural differences, operational disruptions, and technological challenges will be best positioned to thrive. Those that fail to address these integration realities risk squandering the very synergies that justified billion-dollar bets in the first place.

To access the full 2025 Special Report on life sciences M&As from Travelers, click here. &