Cooley’s 2023 Life Sciences M&A Year in Review: Potent Mix of Creativity and Resilience Spurs Activity Heading Into 2024

Cooley LLP

In a subdued year for global M&A, deal-making in the life sciences industry came in waves, with a busy fourth quarter generating cautious optimism heading into 2024. While the year saw an overall decline in M&A activity (down 17% from 2022), total pharmaceuticals and life sciences deal value in 2023 increased by approximately 50% compared to 2022.

Why did life sciences outperform the market? The last quarter of the year ended with a surge of deal activity. For example, in the biopharma space, AbbVie, Bristol Myers Squibb, AstraZeneca, and Roche each announced multiple big-ticket acquisitions in the fourth quarter – including Abbvie’s acquisition of ImmunoGen for $10.1 billion and Cerevel Therapeutics for $8.7 billion; Bristol Myer Squibb’s acquisition of RayzeBio for $4.1 billion, Mirati for $5.8 billion, and Karina for $14 billion; AstraZeneca’s acquisition of Gracell Biotechnologies for up to $1.2 billion and Icosavax for up to $1.1 billion; and Roche’s acquisition of Carmot Therapeutics for up to $3.1 billion and Telavant for $7.1 billion. Big pharma dominated life sciences M&A, with more than two-thirds (69%) of M&A investment coming from big pharma, compared to just 38% in 2022.

Why the uptick? For starters, although the antitrust environment certainly remains top of mind in the market, Amgen’s acquisition of Horizon Therapeutics and Pfizer’s acquisition of Seagen were able to withstand Federal Trade Commission (FTC) scrutiny and successfully close in October and December, respectively, giving well-heeled pharmaceutical acquirers more confidence heading into the back half of 2023 that we expect to continue in 2024.

Of course, while blockbuster acquisitions always get the headlines, smaller deals actually commanded the market, pacing at 160% of their 2022 levels. More than half of all life sciences M&A activity in 2023 was for private and small-cap biopharma sellers. Complex and novel transaction structures for the sector also were a prominent result of the market and regulatory environment, with reverse mergers remaining a fixture and stock-for-stock deals and take-private transactions led by private equity sponsors entering the scene.

What were the key tailwinds and headwinds that made for a potent mix of dealmaking activity in 2023 that continue to impact the life sciences M&A environment in the early days of 2024? This post takes a look. Let’s dig in.

The tailwinds

So, what else can we thank for the relative resilience of M&A in the life sciences industry as we head into 2024? Multiple factors, as it turns out.

Looming patent cliffs

By 2030, more than 190 drugs will lose patent exclusivity, including 69 blockbuster drugs, putting at risk $236 billion in sales. This is expected to particularly affect major pharmaceutical conglomerates, including Bristol Myers Squibb, AbbVie and Novartis – which will look to replenish their current products through internal R&D and by acquiring new products or development assets.

‘Dry powder’

With record levels of cash on balance sheet, big pharma had plenty of “dry powder” available and was not afraid to get off the sidelines. Additional major acquisitions of 2023 included Pfizer’s acquisition of Seagen for $43 billion and Merck’s acquisition of Prometheus for $10.8 billion.

Strained access to public markets and funding

The IPO market remained relatively inactive in 2023, leading many life sciences companies looking to raise funds to turn to other exit strategies. Difficulties raising cash, particularly for small and midsized life sciences companies without commercial revenues and in need of cash to advance their pipelines, pushed companies to explore strategic alternatives.

Strategic innovation

Strategic acquirers are feeling more pressure to consummate bolt-on acquisitions in order to round out their portfolios, enter new markets and fill innovation gaps. Others have pursued less-traditional acquisitions, choosing to instead form alliances and partnerships.


Large life sciences companies have increased focus on their core business, which has led to divestitures and spinoffs of parts of their business in order to provide more cash for acquisition targets.

The headwinds

Antitrust scrutiny continues

Perhaps the biggest headwind of all is continuing scrutiny from antitrust agencies inside and outside the US. That increased scrutiny, however, hasn’t always meant success for the antitrust agencies. As discussed above, the success of the Amgen/Horizon and Pfizer/Seagen transactions in withstanding regulatory scrutiny are a positive sign for big pharmaceutical companies interested in continuing to expand through M&A. Of course, withstanding this scrutiny does not come without time, commitment and expense – and it does not mean that deals with significant product or product candidate overlaps that are inconsistent with the revised FTC/DOJ Merger Guidelines will receive regulatory approvals. The FTC sued to block the Amgen/Horizon transaction in May and only settled in September on the eve of trial. Pfizer, which received a second request from the FTC in July, announced in December that it would donate the rights of royalties from sales of a cancer drug, licensed to Merck KGaA, to the American Association for Cancer Research to address concerns of the regulators, months after turning over commercialization of the drug to the German company.

And let’s not overstate the case – regulators did certainly achieve some significant wins in 2023. After years of Illumina battling US and European antitrust agencies for its acquisition of Grail, and shortly after a court of appeals remanded the FTC’s challenge back to the FTC, Illumina decided in December not to pursue the matter further and committed to divest Grail. Also significant, after the FTC filed suit to block an agreement whereby Maze would have granted Sanofi an exclusive license to Maze’s drug candidate for the treatment of Pompe disease, arguing it would eliminate a nascent competitor, Sanofi decided not to contest the litigation and terminated the agreement. The FTC alleged that the deal “threaten[ed] to not only capture substantial market share from Sanofi, but also potentially replace Sanofi’s treatments as the standard of care for Pompe disease altogether.”

The FTC is likely to continue to pursue novel theories of antitrust enforcement, which may stifle transactions when the parties do not believe the benefits of fighting for the transaction will outweigh the cost. Further, the impact of an aggressive FTC is not only on the deals it stops from closing, but also on the deals that might otherwise have been pursued but never happen. Many buyers want to avoid the time and expense involved with a protracted fight – and sellers want to avoid a deal that may never close – so they may avoid deals with substantive antitrust risk or insist on a substantial reverse termination fee to mitigate the risk.

Valuation disconnects persist

In the post-COVID era, the life sciences market has experienced an increased polarization of successful and distressed companies, with sharp contrasts in liquidity and investment interest as buyers focus on de-risked assets. Many buyers have adjusted their valuation expectations across the market accordingly, while the adoption of a “new normal” worldview catches hold more gradually on the sell side. The valuation disconnect between sellers and buyers has remained a significant impediment to aligning on transaction terms, even where strategic and financial interest and fit are high and the parties are motivated. This is the case particularly for companies primarily or exclusively focused on developing early-stage assets. Companies in the life sciences space increasingly are using tools such as contingent payments tied to certain milestones – often referred to as earnouts in private deals and contingent value rights (CVRs) in public deals – to account for the significant changes in the value of a drug upon achievement of certain regulatory milestones and to help bridge the valuation gap, but as we discussed in a previous blog post, these tools are not one size fits all and cannot always be counted on to close the gap.

The results

Add all those things together and what do we get? In addition to the big pharma buying spree that we discussed above, we saw quite a potent mix of activity in the deal market.

Buyers continue to focus most on later-stage, de-risked assets

Amid this backdrop, one of the biggest trends of 2023 was an increased preference by buyers to focus on later-stage, relatively de-risked product candidates where the company has a more robust data package available to better assess the company’s fair value. In an already risky environment, buyers were less willing to take risks on platform and discovery-stage companies.

In 2023, 74% of transactions involved companies with lead assets that were at least in Phase 3 development or had already received marketing approval, a significant (16%) increase compared to the average share of 58% for such deals from 2019 to 2022. This shift has had a negative effect on earlier-stage companies, particularly for Phase 1 and preclinical companies left struggling to either raise money in the continued depressed public market or, where possible, borrow money with high interest rates. We may continue to see this shift in 2024 with buyers focusing on companies with promising later-stage clinical data.

‘Collaborate or buy?’ question remains key

Buyers in the life sciences industry continue to face the decision of whether to acquire a company or enter into a collaboration deal, which is influenced by the potential benefits of the partnership, the risks of only partial control, the ability to align on upfront valuation and antitrust risk. Overall, there has been a decline in the number of R&D partnerships and licensing deals – volumes fell 15.4% from 2022 to 2023 – which may be attributable to buyers becoming more selective in the types of assets in which they invest and preferring to acquire a company and gain full control. With the licensing transactions that did occur in the biopharmaceutical industry in 2023, a majority occurred at the platform and discovery stages where the risk is significantly higher. While buyers in a competitive market were inclined to take risks by acquiring lesser-tested assets, the current climate has shown buyers are unwilling to take those same risks and prefer collaboration deals until an asset has proven its viability. On the other hand, licensing deals have proven not to be immune to the antitrust headwinds affecting acquisition activity – the impact of the FTC’s success in pushing Sanofi to abandon its license transaction with Maze may continue to stifle licensing activity. In an environment where licensing deals also present antitrust risk, big pharmaceutical companies may favor M&A instead to have full control over the assets – and make the cost of litigating against the antitrust agencies worth the time and money.

Complex transaction structuring again takes center stage

While all-cash and cash plus CVR transactions are traditionally center stage for life sciences companies, the environment of the past year has continued to bring other transaction types not as regularly associated with the sector into the mix. In this section, we discuss some of the most common – or at least most commonly discussed – alternative transaction structures contemplated by life sciences dealmakers this year.

Reverse mergers remain a fixture

2023 opened the door for reverse merger transactions to underperforming small and midsized public life sciences companies that were trading below their initial public offering price and, often, below the value of their cash on hand. Moving into Q2 of 2023, roughly 29% of US public biotech companies traded below their cash value. Faced with limited options, public companies sought reverse merger transactions to receive value for their public listing and to redeploy their unused capital on the development of new assets. Private life sciences companies, which did not have a realistic prospect to go public through a traditional IPO, also found reverse merger transactions as an attractive alternative to deSPAC transactions, which presented their own risks, including unknown redemption rates (averaging as high as 95% in 2023) and dilutive private investment in public equity (PIPE) financings. However, reverse merger transactions often were susceptible to challenge where public company stockholders or other constituents – including known activist investors – advocated for returning the public company’s cash to stockholders as part of a wind down, rather than pursuing a risker, longer-term bet on new assets. As a result, reverse merger candidates increasingly deployed a sign-and-close structure that did not require a public company stockholder vote as a condition to closing but required the use of convertible securities that only would become convertible if subsequently approved by the public stockholders. For any potential reverse merger candidate trading below cash value, the burden will be on the company to convince the market (including PIPE investors) that its longer-term thesis (for a transaction or continuing to go it alone) is worth the gamble.

Stock-for-stock transactions continue

While cash traditionally is king in life sciences M&A, stock-for-stock consideration deals continued to gain momentum in 2023 as an attractive alternative for buyers hoping to avoid the financing markets and life sciences companies seeking value in a combined entity. Those pursuing these transactions, however, often were confronted with twists and turns along the way. For example, 2023 saw Amedisys’ board of directors determine that it was not in its stockholders’ best interest to receive equity in a combined company (after factoring in potential upside of the combined company) and instead paid a $106 million termination fee to terminate a proposed $3.6 billion acquisition by Option Care Health to instead pursue an all-cash offer. Although the market had favorable reactions to various all-stock consideration deals, including a 20% jump in stock price of Revolution Medicines after it announced a proposed acquisition of EQRx, the market has reacted poorly in many other instances. When pursuing a stock-for-stock transaction, it is critical for both parties to effectively message to the market the strategic benefits and long-term potential upside of the deal while proactively anticipating potential stockholder opposition – including a potential competing all-cash bid or cash liquidation alternative.

Sponsor-led take-private transactions – and hostile takeovers – come to life sciences

So-called take-private transactions led by a private equity sponsor have become a hot topic in healthcare. Notably in 2023, private equity firms Elliott Investment Management, Patient Square Capital and Veritas Capital acquired Syneos Health, a biopharmaceuticals solutions company, in an all-cash acquisition for $7.1 billion, while EQT acquired Dechra Pharma, a veterinary products business, in an all-cash acquisition for $6.1 billion.

Certain financial actors also sought to acquire struggling biotech companies in 2023 for a discount to the target’s net cash, with the plan to immediately liquidate them and receive the remaining cash as profit. Most recently, in December 2023, Tang Capital Partners (through Concentra Biosciences, of which Tang Capital is the controlling shareholder) made an unsolicited proposal to acquire 100% of the equity securities of LianBio in hopes of acquiring its cash on hand equal to $515 million. As has been the case in other similar Tang proposals, Concentra also offered a CVR representing the right to receive 80% of the net proceeds payable from any license or disposition of LianBio’s programs. In 2023, Tang Capital filed a total of five separate Schedule 13Ds with the SEC seeking to acquire five different companies on similar terms.

What’s next? Looking ahead to 2024

Looking ahead, we expect to see more robust M&A activity in the life sciences sector in 2024. A possible decline in interest rates and further cooling of inflation is expected to lead to increased investor confidence in the economy, a convergence in expectations around company valuations and an increased appetite for deal activity. Headwinds, however, will persist, and the industry will continue to grapple with regulatory uncertainties, geopolitical challenges and risk-averse buyers who seek significantly de-risked assets. In the US, companies will be keeping an eye on the upcoming presidential election, and the effects of the newly issued changes to the merger guidelines, as outlined further by Cooley’s antitrust team in a recent blog post.

Life sciences companies will feel continued pressure to acquire and divest assets, in order to innovate, focus financial resources and deliver healthy returns in a rapidly evolving market. Approaching patent cliffs will drive large pharmaceutical companies to acquire new assets to replenish their pipeline and mitigate sales losses. Buyers likely will continue to focus on companies with commercialized products or later-stage development products for M&A. With the renaissance in weight-loss drugs in 2023, we expect even more investor interest in that space in the year ahead. Digital health, medical device and life sciences companies will seek to acquire and integrate artificial intelligence and machine learning into their tools and platforms, but they will need to weigh the risks of evolving regulations in a relatively new area of law. Companies will be open to using creative structures to address their needs, including through collaboration deals, partnerships and divestitures.

And we wouldn’t round out a prediction without forecasting that there will be some surprises as well. We’ll keep you posted.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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