Steering Through Uncertainty: Biopharma Industry Adapts to Economic Pressures, Geopolitical Risk, Market Volatility with Innovation and Strategic M&A

Global biopharmaceutical executives and investors face a challenging environment. Decision-makers are uncertain about the outcome of the upcoming U.S. election and its impact on economic and fiscal policy, healthcare and anti-trust regulations, and geopolitical risks. The continued volatility in biotechnology indices adds to the complex dynamics in the sector. Despite these pressures, biopharmaceutical leaders remain optimistic about innovation and expect rising levels of M&A activity.

In a new report, Lazard’s Healthcare Advisory team surveyed 291 c-suite executives across the largest global biopharma companies, smaller private and public organizations, and leaders from prominent investment firms. We asked respondents about the forces shaping their outlook for biotechnology public market valuations, the drug provisions of the Inflation Reduction Act, M&A and collaboration activity, top therapeutics areas, innovative technologies, and China’s influence on innovation and other biopharmaceutical activity.

Biopharma leaders are optimistic about bolt-on acquisition and strategic collaborations.

Biopharmaceutical bolt-on acquisitions are expected to increase, with 81 percent of survey respondents anticipating an increase relative to last year.  Similar sentiments exist about strategic alliances and licensing, with 76 percent of respondents expecting increased levels of activity. By contrast, large-cap consolidation is expected to remain at a subdued level, with 87 percent predicting the same or even lower level of large-cap consolidation.

The need for growth is the leading catalyst driving the anticipated increase in biopharma activity.

79 percent of large pharma executives and 74 percent of investors say that the need for growth will drive increased M&A activity, up by 9 percent and 11 percent since the year prior, respectively.

Positive clinical data and the need for innovation further motivate more activity. 54 percent of respondents said positive clinical data from specific biotech companies was a catalyst, ranking as the second most important factor to further biopharmaceutical M&A activity. 47 percent of respondents believed the need for innovation was critical – although among large pharmaceutical executives, that number was significantly lower than the year prior. 

Despite the consensus view for an increase in bolt-on acquisition and strategic collaborations, a number of challenges remain.

The value expectations of biotech management and board members is still the top impediment to executing deals. 61 percent of overall respondents cite this factor as the top challenge for deal execution this year.

The impact of transactions on R&D budgets and the P&L also ranks as a top challenge hindering M&A activity – particularly among large pharmaceutical executives.  Indeed, concern among large pharma leaders about the impact on R&D budgets and P&L has almost doubled since last year’s survey to 79 percent.

By comparison, emerging biotech companies are more focused on stock price volatility.

Beyond these catalysts and opportunities, the top therapeutic area priority for biopharma pharma leaders is autoimmune, inflammation, and fibrosis.

Biopharmaceutical leaders have increased their ranking of autoimmune, inflammation, and fibrosis as a top therapeutic priority to 58 percent in 2024, up from 48 percent in 2021. This increase is most pronounced among large pharma leaders and investors than other executives in the biopharmaceutical ecosystem. Other therapeutic priorities are more widely distributed than in the past across solid tumors, rare diseases, neurology and metabolism.

Views on the most disruptive, innovative technologies remains widely distributed, once again reflecting the exciting level of biopharmaceutical innovation.

This year, leaders and investors have shifted away from immuno-oncology, gene editing and RNA in favor of next-generation antibodies, antibody drug conjugates, and radiopharmaceuticals. Meanwhile, precision medicine and AI/ML are in line with last year as high priority areas of innovation. Today, biopharmaceutical leaders believe AI/ML is having the most impact on the time and cost of the chemistry discovery process, followed by biological discovery, clinical development and then patient engagement. Looking forward five years, its impact is expected to shift more toward clinical development and to be more broadly distributed across discovery and patient engagement.

Read the full report here.

By Peter Orszag , David Gluckman , Michael Kingston and Dale Raine