Merger and Acquisition Surge in Life Sciences Driven by AI and China Innovations

Surge in Life Sciences M&A Activity: AI and China at the Forefront

The life sciences sector has witnessed a stunning acceleration in its mergers and acquisitions (M&A) activity, with total investments reaching an impressive $240 billion in 2025. This represents an 81% increase compared to $130 billion in 2024. The surge has been powered primarily by significant deals orchestrated by major pharmaceutical companies, despite a reduction in the overall number of transactions. This highlights a trend where industry players are prioritizing high-value deals that align with best-in-class innovations, focusing on those that are either ready to launch or near-market.

Trends and Challenges in Life Sciences M&A

According to EY's recent M&A Firepower report, while the average size of deals has soared to $2.1 billion—up by 107% from the previous year—there was also a notable drop in the overall deal volume. Biopharma saw a decline of 19% in transaction numbers, while MedTech showed a modest growth of 6%. This seemingly paradoxical phenomenon underscores companies' strategic pivot towards fewer, yet larger, and more impactful transactions.

Subin Baral, the Global Life Sciences Deals Leader at EY, emphasized that the underlying economic fundamentals remain robust within the industry. Although there are challenges such as regulatory hurdles, geopolitical uncertainties, and heightened valuations, Baral remains optimistic about sustained growth opportunities in 2026. According to him, the focus will be on integrating high-quality innovations to enhance patient outcomes, making dealmaking a vital component of growth.

Widening Growth Gaps and Analyst Concerns

Even as management teams express optimism about the future, analysts have adopted a more cautious stance. The EY report projected a growth gap that could reach $100 billion by 2028 and an alarming $370 billion by 2032, primarily driven by the expiry of exclusivity on blockbuster drugs and increasing geopolitical tensions. Analysts have a mixed outlook on the pipelines of the top 25 pharmaceutical firms; over 50% anticipate neutral to negative updates, with more than 40% skeptical about future M&A and partnership opportunities. This presents a crucial challenge for the industry that seeks to identify high-potential deal targets to revitalize and optimize their pipelines.

China's Growing Role in Life Sciences

China has rapidly emerged as a pivotal player in the global biopharma landscape, capturing a remarkable 34% of total alliance investments from Western biopharma companies in 2025—a massive jump from just 4% in 2020. Five of the ten largest alliance deals this year involved Chinese firms, highlighting the nation’s evolving innovation ecosystem. The swift transition from research and development to commercialization makes Chinese partnerships increasingly attractive for companies looking to diversify their pipelines and accelerate their growth strategies.

The Impact of AI on Deal-making Strategies

Artificial intelligence (AI) is reshaping the M&A landscape within life sciences at an unprecedented pace. The EY M&A Firepower report noted a staggering 256% increase in the potential value of M&A deals aiming to access AI platforms. Companies are increasingly leveraging AI throughout the deal-making process—from identifying targets to successfully integrating new assets. Interestingly, only 32% of completed deals met or exceeded initial revenue expectations, highlighting a pronounced opportunity for firms especially when acquiring within familiar therapeutic areas.