Against a backdrop of geopolitical tension, valuation resets and shifting capital markets, life sciences dealmaking is not slowing, it is recalibrating. The tone at McDermott Will & Schulte’s Life Sciences Symposium, held in Paris in March, reflected that shift.
The message from across panels was consistent: uncertainty has not stalled dealmaking, it has reshaped it. Transaction structures are evolving, capital is becoming more selective, and strategic priorities are sharpening across pharma, biotech and healthcare services.
“There is still a lot of activity,” says Emmanuelle Trombe, head of the Life Sciences Industry practice in Paris. “But it is more focused, more selective – and in some areas, structurally different from what we have seen before.”
Dealmaking adapts to patent cliff
The first panel, focused on emerging transaction trends, highlighted a key structural driver: the looming patent cliff.
Large pharmaceutical companies are actively deploying capital to replace expiring revenues, driving a resurgence in M&A activity, particularly in late-stage assets.
“We are seeing an increased level of M&A in pharma to mitigate the patent cliff and loss of exclusivity issues,” Trombe says.
That is translating into intense competition for a relatively narrow pool of assets. Areas such as obesity (notably GLP-1 therapies), oncology and targeted biologics are attracting disproportionate attention from both strategic buyers and investors.
“The focus is on the same category of assets – late-stage or near-commercial products,” she notes. “There are relatively few of them, so the market is very competitive.”
Deal sizes reflect this targeted approach. Rather than megamergers among the major players, the market is characterised by transactions in the US$1bn to US$10bn range – large enough to move the needle, but selective in scope.
At the same time, early-stage innovation has not been abandoned. Instead, companies are using more flexible structures, particularly corporate venture investments, options and collaborations, to secure future pipelines.
“You deal with the short-term issue through late-stage assets,” Trombe explains. “But you still need to fill the pipeline. That’s where early-stage collaborations and venture equity investments come in.”
Another emerging dynamic is the growing influence of Chinese innovation. With a significant share of global drug development now originating in China, new cross-border structures are emerging, including “NewCo” models that separate ex-China rights and allow international capital to participate.
Financing innovation through innovation in finance
If dealmaking is evolving, so is the way those deals are funded.
While traditional equity and debt remain central, the symposium highlighted a growing shift towards more structured and flexible financing models. Royalty-based financing and other non-dilutive capital solutions are gaining traction in Europe, offering biotech companies new routes to fund development without immediate dilution while allowing investors to participate in future revenue streams.
“We see this type of financing increasing, with more deals and more players looking for opportunities,” Trombe says.
It reflects a broader shift towards risk-sharing models across the sector, enabling companies to progress assets through development stages that might otherwise remain underfunded.
“Innovation in financing is both expanding the capital pool and redistributing risk with far greater precision,” said Aymen Mahmoud, managing partner of McDermott’s London office and head of the firm’s European finance practice. “Structures like royalty and milestone-driven financings are attracting new investors, particularly into the underfunded space between clinical validation and commercial scale where traditional capital is often constrained.”
This “missing middle” has long been a bottleneck for European biotech, where promising assets often struggle to secure the capital needed to bridge late-stage development and commercialisation. More sophisticated financing tools are now beginning to address that gap.
For investors, this evolution is not simply about access, it is about control and risk calibration. By structuring exposure around specific milestones, revenues or asset-level performance, capital can be deployed more selectively and with greater downside protection.
For companies, the implication is equally significant: access to a broader and more nuanced pool of capital, capable of supporting innovation through increasingly complex development pathways.
At the same time, competition for high-quality assets remains intense, reinforcing the need for more tailored capital solutions. For large pharma, strong balance sheets and significant dry powder mean acquisitions can still be financed without extensive divestment.
There is, however, a parallel trend towards portfolio optimisation.
“We are seeing refocusing on core areas and divesting non-core activities,” Trombe notes, pointing to examples such as OTC and generics disposals. “It’s about efficiency, margin and strategic focus.”
These carve-outs are, in turn, creating opportunities for private equity investors.
Private equity recalibrates
Private equity remains active in life sciences and healthcare, but strategies are evolving in response to market conditions.
Historically, services, particularly pharma services and contract research organisations (CROs), have been a key focus. That continues, but with greater selectivity.
“There is still activity, but it is more cautious,” Trombe says, citing regulatory scrutiny and reimbursement pressure in certain markets.
The post-Covid environment has also introduced a valuation reset. Many services businesses acquired at elevated pandemic-era multiples have since faced operational and funding headwinds, particularly as biotech financing tightened.
This has led to consolidation opportunities, particularly in fragmented segments such as CROs and clinical trial services.
“We see a trend of consolidation in pharma services,” she says. “There is an opportunity to acquire at revised valuations.”
In cases where assets are not yet ready for exit, continuation funds are increasingly being used to extend holding periods and allow further value creation.
IPO markets remain selective. While some biotech listings have reopened in the US, European markets remain subdued.
“Nasdaq is still the place to list,” Trombe says. “It is a market that investors and companies understand.”
Capital flows: selective and strategic
Across the market, capital deployment is becoming more targeted.
Large pharma continues to focus on high-value, late-stage therapeutics, while private equity and mid-market investors are more active in areas such as MedTech, diagnostics and specialised services. However, these sectors are not without challenges. In Europe, reimbursement pressures, particularly in areas such as laboratory testing, are weighing on investment decisions.
“Exposure to budget constraints is impacting services,” Trombe says, noting pushback on pricing following the elevated revenues seen during Covid.
As a result, investors are increasingly focused on segments with clearer pricing power, differentiated technology or strong demand fundamentals.
AI moves from narrative to necessity
Artificial intelligence was a central theme of the afternoon sessions and, in Trombe’s view, one with genuine substance behind the hype.
“It’s no longer just a buzzword,” she says. “It is seen as a way to manage constraints, both on drug development costs and on healthcare system efficiency.”
In drug discovery, AI has the potential to improve success rates and reduce development timelines. In healthcare delivery, it offers tools to optimise resource allocation and improve outcomes within constrained budgets.
However, the proliferation of solutions creates its own challenge: selection.
“There are a lot of solutions, and not all of them will survive,” Trombe notes. “The key is adoption.”
The winners are likely to be those platforms that can scale quickly, integrate into existing workflows and become industry standards.
Geopolitics reshapes strategy, not activity
Geopolitical factors are adding another layer of complexity, but are not halting dealmaking. Instead, they are reshaping strategy.
A central issue is US drug pricing policy, particularly the concept of “most favoured nation” pricing, which links US prices to those in other markets.
“There is a clear focus on lowering drug prices in the US,” Trombe says. “That has implications for Europe and for global pricing strategies.”
This is already influencing deal structures, particularly around licensing and commercialisation. Companies are increasingly cautious about granting regional rights that could have unintended pricing consequences.
“We see fewer ex-US licensing deals,” she notes. “And more case-by-case analysis.”
This dynamic may also delay launches in certain markets, as companies seek to optimise pricing strategies across jurisdictions.
Supply chain strategy is also evolving. While the impact of geopolitical tensions and energy prices is more gradual, there is a clear trend towards localisation and resilience.
“Companies are looking at where they manufacture,” Trombe says, including increased investment in US facilities to align with policy priorities and mitigate risk.
A more disciplined outlook
The overall picture is one of a market that remains active, but more disciplined.
Pharma companies are deploying capital with greater focus, targeting specific therapeutic areas and development stages. Investors are recalibrating risk, favouring structures and sectors that offer clearer visibility on returns. And new financing models are helping to bridge gaps left by traditional capital.
Many of these shifts appear structural rather than cyclical.
“I think it is structural,” Trombe says, while acknowledging that sector dynamics can evolve over time. “Today, the focus is clearly on innovation.”
For investors, this creates both challenges and opportunities. Competition for high-quality assets remains intense, but new entry points are emerging through structured capital, mid-market consolidation and enabling technologies.
Uncertainty, in this context, is no longer a barrier to dealmaking, it is the catalyst for its reinvention.
