Government cuts, especially those to the FDA, are putting more pressure on biotechs, fueling the potential for more M&A activity, according to Andrew Goodman, a partner in the M&A practice at business law firm Paul Hastings.
While it was generally assumed that the return to power of business-friendly President Donald Trump would help facilitate M&A activity, his initial marching orders to the Federal Trade Commission suggest otherwise.Trump has instructed the antitrust regulator to continue to scrutinize deals, as it did under the direction of former President Joe Biden.Despite this, there have been indications that the M&A environment is opening up, as the value of deals in the first quarter increased by 101% compared to the fourth quarter of last year, according to a report from GlobalData. The first-quarter figure, however, doesn’t measure up to the same period of 2024 when deal values were 32% higher.“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,” Ophelia Chan, an analyst at GlobalData, said in the report.One Trump measure that could have the unintended consequence of triggering M&A deals is his reductions in funding to the FDA and the National Institutes of Health.According to Andrew Goodman, a partner in the M&A practice at business law firm Paul Hastings, reductions in staff at the FDA are putting pressure on biotech companies, especially those strapped for cash.“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 said in a recent interview. “To factor in elongated timelines for the FDA to complete their review, that could be months extended to a company’s plans to get a drug approved, for example.”Goodman co-authored a client alert, “FDA Funding Changes Could Impact Biotech M&A,” which lays out several key areas in which FDA funding cuts are likely to impact M&A.Clients have told Goodman that contacts they have been working with at the FDA have suddenly departed. As a result, stockholders in some companies that work with Hastings are urging boards to proactively recalculate cash runways and examine strategic alternatives.As biotechs face funding problems or FDA delays, they may be more likely to pursue M&A to gain capital from cash-rich or synergistic partners. Additionally, well-funded companies might see opportunistic value in acquiring financially distressed companies. There may also be increased interest in biotech companies from private equity firms, Goodman said.“There are a lot of biotechs that are trading below their cash value, and I think you’ll see acquisitions of those companies by incrementally larger companies,” Goodman noted. “They may have a program that’s strategic or complementary, but what they’re really doing is using M&A as a financing solution.”In the short term, working against a surge in M&A is the overall turbulence in the macro economy and what is going on with tariffs, according to Ben Folwell, an analyst with Citeline.“They’re big investments. They take a long time, so they tend to require stability for them to really take place,” Folwell said. “That said, we’re still in a position where there are companies—particularly big companies—that are going to be looking to refill their pipelines with looming patent cliffs getting ever closer.” Among the companies specified by Folwell that lose their patent protection for drugs this year are Johnson & Johnson (Xarelto), Novartis (Entresto), Amgen (Prolia, Xgeva) and Pfizer (Xeljanz, Inlyta).The analysts agree that once the implications of tariffs and other aspects of the transition to the Trump administration are sorted out, there will be a surge in activity.“I think we’re gonna sit here for probably a couple more months while people get comfortable and acknowledge the fact that there’s not going to be certainty,” Goodman said. “But 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. I think in the second half of this year, we’ll see more M&A.” Folwell doesn't rule out a return to the splurge of huge biopharma deals late in the first Trump administration, when Bristol Myers Squibb acquired Celgene for $74 billion, Takeda snapped up Shire for $64 billion and AbbVie bought out Allergan for $63 billion. "We had a lot of companies deciding at once that they needed to look to the future and really become these global forces that they are now," Folwell said. "They were saying, 'We need to add in these big, successful companies that have got proven medicines but also very strong pipelines to really transform what the company is.'"
