Big Pharma is on the prowl for biotech companies, but it’s acting stingy.
Deal sizes are smaller, valuations are reasonable and buyers are walking away from megadeals when sellers push too hard on price.
That restraint is—paradoxically—great news for biotech. More companies get a shot at a takeout, a more diverse group of shareholders cash out earlier and capital cycles back through the whole ecosystem rather than pooling in one place.
It isn’t uncommon for Big Pharma to pay tens of billions of dollars for a biotech company. This year, that hasn’t happened just yet.
Instead, the industry is on pace for a record of what are known as bolt-ons: midsize deals typically in the low-single-digit billions. That explains why, even after a rally in 2025, biotech stocks continue to outperform.
The SPDR S&P Biotech ETF is up about 6% this year while the S&P 500 is slightly negative. That comes after biotech beat the broader market by roughly 20 percentage points in 2025. Given pharma’s insatiable demand to replenish its pipeline, as well as grounded biotech valuations, there’s good reason to think both dealmaking and biotech share-price gains can keep going.
Not long ago, pharma companies were swinging for the fences and massive deals made up the bulk of transactional dollars. The biggest year on record for biopharma M&A, 2019, was driven by two megamergers: AbbVie’s $63 billion acquisition of Allergan and Bristol Myers Squibb’s $74 billion takeover of Celgene. More recently, Pfizer paid $43 billion for cancer-drug biotech Seagen in 2023.
Those blockbuster deals are almost always driven by companies trying to plug massive holes left by expiring patents. But the results have been mixed at best.
Bristol Myers and Pfizer, the buyers behind two of those large acquisitions, have both underperformed the broader pharma industry and continue to grapple with revenue pressures.
Large deals are still on the table, but pharma has clearly signaled a preference for spreading bets across a combination of smaller plays. For biotech, that shift is a windfall.
“It creates a climate of innovation and boosts the value of smaller and midsized biotech companies instead of a climate of sector consolidation focused on scale and efficiencies,” says Sanjiv Talwar, a healthcare portfolio manager at Alger.
No company captures the dynamic better than Merck. Keytruda, its blockbuster cancer immunotherapy, brought in nearly $32 billion of revenue in 2025—nearly half of the company’s sales.
But its key patents expire in 2028. So Merck is desperately hunting for deals. Merck is open to buying large companies, but it’s being disciplined.
Earlier this year the company was in discussions to acquire Revolution Medicines, a cancer biotech that could have fetched around $30 billion. The two couldn’t agree on price and talks fell apart. The company also reportedly walked away from Seagen before Pfizer snapped it up.
Instead of large deals, Merck has gone on a bolt-on binge, spending $10 billion for pulmonary-disease treatment developer Verona Pharma last July, $9.2 billion for antiviral developer Cidara Therapeutics in November, and about $6 billion for leukemia-drug developer Terns Pharmaceuticals a few weeks ago. Investors approve of the strategy: Merck’s stock is up 41% in the past six months.
It isn’t just Merck. Through April 7, 19 deals valued at $1 billion or more have been announced, according to Stifel. Yet none of those deals have been for more than $10 billion. The number of deals already rivals many full years and puts 2026 on pace for an annualized record of 72 such deals, more than double last year.
Total dollar volume is on pace to make this the second-most-active year for biopharma M&A in history, trailing only 2019, notes Stifel’s Tim Opler.
Notably, six of those 19 deals came from just two companies: Gilead Sciences and Eli Lilly, spanning cancer, autoimmune diseases and sleep disorders.
Both happen to be among the least exposed to near-term patent expirations. This frees them to think longer term, placing smaller bets on companies whose payoff might not arrive immediately. That is instead of trying to replace revenue that’s disappearing now.
Two forces suggest the dealmaking has further to run. Pharma needs to keep buying. Of the roughly $700 billion in annual revenue generated by the world’s 14 largest drug companies, nearly half of it will face patent expiration by 2031, according to investment-bank Needham.
And the industry can afford to: It has more than $650 billion in what Stifel calls “comfortable” M&A firepower. This represents the debt capacity available while keeping balance sheets on solid footing.
Pharma isn’t paying through the nose for it, either. By Goldman Sachs’s measure, the median price paid in these deals has fallen to about seven times a target company’s projected revenue in the year after the deal is announced. That is well below the approximately 11 times typical from 2007 to 2023. In other words, this isn’t a frothy market.
For investors, the lesson might be that the best environment for biotech isn’t the one with the biggest deals. It’s the one with the most of them.
Write to David Wainer at david.wainer@wsj.com
