Globally, market volatility has eroded confidence and subdued M&A activity. A “wait and see” approach is the prevailing sentiment for many market participants; it is difficult to convince boards to advance deals while valuations are unpredictable, while the uncertainty surrounding tariffs is adding complexity to negotiations and long-term planning.

In the life sciences sector in particular, deal value has fallen sharply in recent years. In 2024, the total value of global life sciences and healthcare M&A with contingents fell 36% year-on-year to USD137.3 billion, with no therapeutic biopharma acquisitions exceeding USD5bn. 

At the same time, there are factors specific to the industry that continue to drive transactional activity, including that the sector is willing to deploy its accumulated cash in return for access to promising assets. In Q1 2025, the sector saw 132 deals worth USD52bn with contingents, the strongest quarter since Q4 2023 and 11.5% higher than Q4 2024.

Patent cliff creates momentum to pursue innovative assets

In the U.S., large-cap pharmaceutical companies are confronting a patent cliff that is expected to wipe out more than USD250bn in global revenues by the close of the decade. This dynamic is compelling acquirors to pursue innovative assets—particularly in oncology, immunology, gene therapy, and rare diseases—within start-ups and mid-cap biotech targets.

At the same time, the shift toward precision medicine and platform-based R&D has amplified demand for data analytics systems, AI-enabled drug-discovery technologies, and integrated diagnostic capabilities, and in doing so broadened the definition of a “life-sciences” target to include digital health companies, genomic-sequencing firms, and specialty contract research organizations.

On the sell-side, capital markets dislocation—exacerbated by elevated interest rates, a tepid IPO window, and venture investors’ prioritization of portfolio triage—has compelled many early-stage biotechs to contemplate strategic alternatives at valuations that are lower than during the market’s 2021 zenith and are therefore attractive to cash-rich strategic buyers.

Private capital investors increase exposure to sector

Concurrently, private equity sponsors and sovereign wealth funds have increased their exposure to the sector, often via consortium structures that pair their capital with R&D-oriented operating partners. These hybrid arrangements typically accommodate the extended investment horizons inherent in clinical development while addressing acquirors’ desire for downside risk-sharing, milestone-based earnouts, and royalty streams.

While significant acquisitions have been less frequent in the life sciences industry in recent years, the sector has a long-standing reliance on traditional M&A as an engine for growth, portfolio realignment, and pipeline replenishment. With that said, unorthodox structures such as the hybrid arrangements noted above are another key driver for expansion and innovation.

Strategic alliances feature as lower-risk precursors to outright acquisitions

Looking ahead, we remain optimistic about a gradual reopening of the U.S. biotech IPO market in the latter half of the year. Nevertheless, the patent-expiry super-cycle and the urgency of therapeutic differentiation are expected to preserve M&A as the sector’s dominant strategic lever. Transaction structures are likely to retain contingent components, while strategic alliances—licensing partnerships, co-development and joint research agreements, joint ventures, and option-to-acquire deals—will continue to feature prominently as lower-risk precursors to outright acquisitions. 

Creative deal structures and transactions have always been a staple of the life sciences industry. The frenetic pace of scientific discovery, the huge cost of clinical trials, and the inherent uncertainty of the regulatory approval process have driven companies to adopt an array of collaborative and innovative approaches that differ markedly from the conventional, full-company “sign-and-close” acquisition model more common in other industries. The global nature of the sector also drives diversity in dealmaking.

For example, Merck & Co’s partnership with Daiichi Sankyo in 2023 exemplified a multi-asset collaboration with the companies co-promoting and sharing profits and expenses.

Such structures are designed to allocate risk, optimize capital deployment, preserve optionality, facilitate access to specialized capabilities, and accelerate time to market without incurring the balance-sheet and integration burdens that accompany outright acquisitions.

Flexible strategies prove resilient in challenging M&A markets

These flexible strategies have proven especially resilient in challenging M&A markets, as they allow parties to tailor deal terms to evolving macro conditions, defer major capital commitments, and pursue incremental value creation even when traditional dealmaking slows due to macroeconomic uncertainty or constrained financing environments.

While each transaction is highly bespoke, they frequently share certain legal features: complex intellectual property allocation mechanisms, tiered economic waterfalls, unilateral or mutual termination and control-transfer triggers, and governance frameworks that resemble miniature joint venture constitutions.

At the earliest stages of research, parties often enter discovery collaborations or target-identification alliances via which a large pharmaceutical company will fund basic research in exchange for an exclusive option—exercisable upon the achievement of preclinical or early clinical milestones—to license or acquire the resulting intellectual property.

A good example is the 2024 collaboration between GSK and Flagship Pioneering, which aims to discover and develop ten transformational medicines and vaccines in a deal worth up to USD870 million. The transaction gave GSK an exclusive option to license the candidates for further clinical development. Meanwhile, Novartis announced at the end of last year a multi-year, multi-target alliance with Schrödinger to apply the latter’s computational predictive modelling technology and enterprise informatics platform to identify and advance therapeutics.

Option structure provides originator with nondilutive capital and validation

The option structure provides the originator with nondilutive capital and a validation halo, while permitting the larger party to defer major consideration until meaningful de-risking has occurred. Option considerations are invariably tiered: an upfront technology fee, periodic research funding tranches, an exercise price calibrated to the stage of development at exercise, and downstream milestone and royalty payments. The accompanying legal architecture must address ownership of background IP, the extent of the license during the option term, publication restrictions, exclusivity commitments, and termination rights keyed around safety signals or any failure to reach agreed research goals.

As the asset matures, co-development and co-commercialization arrangements emerge, typically involving a sharing of global clinical development costs and a geographic or field-based allocation of commercialization rights. Merck and Bayer agreed exactly this sort of arrangement in 2014 for the cancer drug Adempas, which included joint steering committees and profit-sharing arrangements.

Economic participation is usually expressed through either cost-sharing and profit-split formulas or royalties. Here, the governance terms resemble those found in joint ventures: joint steering committees, escalation paths, deadlock-resolution provisions, tie-breaker voting rights for the party bearing greater financial risk, alliance managers, and dispute-escalation ladders.

Staged buyouts increase in popularity

An increasingly popular variant is the staged buyout: the commercial lead receives an option to purchase the partner’s retained co-commercialization stake after regulatory approval, with a pre-agreed multiplier on net sales or fair-market-value floor to compensate the minority partner for early-stage risk-sharing.

Regional or territory-specific license transactions continue to proliferate as companies seek rapid entry into markets such as China, Japan, and Latin America, where legacy incumbents possess established regulatory, manufacturing, and distribution infrastructure. For example, Amgen’s 2019 agreement with BeiGene granted BeiGene rights to commercialize Amgen’s oncology portfolio in China, leveraging BeiGene’s local expertise. More recently, Bayer acquired the rights to Cytokinetics’ heart drug in Japan to strengthen its cardiovascular business.

These deals address antitrust and national security concerns by channeling rights through local subsidiaries and incorporating CFIUS—(or analogous regime) compliant information-sharing protocols. Increasingly, parties negotiate step-in provisions that enable the global licensor to re-assume rights upon the occurrence of predefined performance shortfalls, thereby providing a synthetic “call option” to re-aggregate global rights without the complexity of a traditional acquisition.

Platform collaborations where discovery-stage company possesses enabling technology

Then there are platform collaborations, which are serviceable when a discovery-stage company possesses an enabling technology—such as mRNA, CRISPR-based gene editing, or antibody-drug conjugate linkers—that can spawn multiple product candidates across disparate therapeutic areas.

A prominent example is the 2018 collaboration between Moderna and Merck to develop personalized cancer vaccines using Moderna’s mRNA platform. The largest collaborative R&D alliance in 2024 saw Bristol Myers Squibb pay USD55m to collaborate with Prime Medicine to develop reagents for ex-vivo T-cell therapies. Under the terms of the agreement, Prime will design optimized editor reagents for a select number of targets, including reagents that leverage its Prime Assisted Site-Specific Integrase Gene Editing (PASSIGE) technology.

Here, rather than buying the platform outright, a larger counterparty will license access to a limited number of “collaboration targets” while typically receiving an equity stake to align incentives. Each target is governed by its own development plan and set of milestones. Because the platform owner is concurrently developing its own pipeline assets, the definitive agreements must define “fields”, background and foreground IP, and improvements with exceptional granularity to mitigate freedom-to-operate conflicts. Oversight of publication rights and competitive programs, especially when the platform may be foundational across multiple alliances, is a perennial negotiation flashpoint.

Manufacturing and supply partnerships often function as quasi-joint ventures, particularly for biologics that require specialized cell-culture or gene-therapy vector capacity. For instance, the 2020 partnership between Lonza and Moderna to manufacture mRNA-1273, Moderna’s COVID-19 vaccine, involved long-term capacity commitments and technology transfers.

More recently, Regeneron has agreed a ten-year manufacturing and supply agreement worth USD3bn with Fujifilm Diosynth Biotechnologies, which will make large bulk drug products for the biotech at a new site in North Carolina. This deal nearly doubles Regeneron’s U.S. manufacturing capacity amid ongoing tariff concerns in the U.S.

Change-of-control provisions under spotlight in manufacturing partnerships

Under these deals, the innovator retains product ownership but commits to long-term minimum purchase obligations, frequently backed by capacity reservation fees and take-or-pay terms. Change-of-control provisions receive heightened scrutiny because any acquirer of either party could find itself contractually bound to an unwanted long-term supply arrangement or forced to share proprietary manufacturing know-how with a competitor.

Asset purchases coupled with contingent milestone or royalty consideration have replaced whole-company acquisitions where the seller is a single-asset entity. For instance, in 2024 AstraZeneca acquired Amolyt Pharma for USD800m with a potential contingent payment of USD250m and BioNTech’s acquisition of Biotheus with potential USD150m contingent payment.

These assignments may be structured through the sale of patents, investigational new drug applications (INDs), and/or manufacturing know-how, sometimes consolidated in an IP-holding subsidiary that is spun off to the buyer. In these arrangements the earn-out component is of outsized importance and often extends across commercial sales, label expansions, and even patent-term-extension events. Deal agreements must address audit rights, information-sharing, change-of-control acceleration, and buyer obligation to use “diligent” or “commercially reasonable” efforts, with each calibrated to bind the buyer to sustain development. In the U.S., the Delaware court has traditionally been reluctant to enforce vague best-efforts covenants.

Synthetic securitizations allow mature revenue streams to be monetized

Royalty-interest divestitures, sometimes styled as synthetic securitizations, enable innovators to monetize mature revenue streams while retaining product ownership. A recent example is Royalty Pharma’s 2024 purchase of royalties and milestones on autoimmune disease drug frexalimab from ImmuNext for USD525m.

Structured spin-outs—where an originator contributes a non-core therapeutic program into a newly capitalized subsidiary funded by venture investors and retains an option or right of first refusal to reacquire the program post-proof-of-concept—allow large pharma companies to offload near-term R&D expense while preserving future strategic control. For example, in 2018, GlaxoSmithKline spun out its oncology assets into a new company, Tesaro, which was later reacquired after clinical validation. The parent’s option is usually exercisable at predetermined multiples of invested capital or fair value, often combined with an automatic conversion of the venture investors’ preferred shares into a royalty or milestone entitlement to align economics upon re-acquisition.

Asset swaps gain traction as companies refocus

Finally, asset swaps and therapeutic-area carve-outs have gained traction as companies refocus their pipelines. A notable example is the 2014 asset swap between Novartis and GlaxoSmithKline, in which Novartis acquired GSK’s oncology portfolio while GSK took over Novartis’s vaccines business, allowing both companies to sharpen their strategic focus.

In these transactions two parties exchange late-stage or commercial portfolios in disparate therapeutic areas, obviating cash consideration, accelerating strategic fit, and sidestepping antitrust concerns that might arise from concentration within a single modality. Because valuation mismatches are inevitable, balancing payments or contingent-value rights are integrated to equalize post-closing economics, and transitional-services agreements govern supply chain, pharmacovigilance, and quality-assurance obligations until full operational separation is achieved.

Deal considerations

When structured carefully, these alliances and novel transactional forms provide life science companies with the flexibility to access capital, capabilities, and markets while minimizing the binary risk profile that has historically typified blockbuster drug development.

Across all of these collaborative and non-traditional M&A structures, practitioners confront recurring commercial and contractual considerations:

• scrupulous delineation of background versus foreground intellectual property and improvements
• sophisticated milestone-based economics that align risk and reward while safeguarding accounting treatment under frameworks such as U.S. Accounting Standards Codification 606
• governance provisions that provide for joint oversight while sidestepping antitrust or fiduciary duty constraints
• rigorous change-of-control and assignment clauses calibrated to the high acquisition churn in the sector
• data-privacy, pharmacovigilance, and regulatory-compliance frameworks to manage the global exchange of clinical data
• dispute-resolution mechanisms that often combine expedited arbitration for scientific disagreements with traditional court procedures for monetary claims.

Hybrid arrangements also often present novel tax considerations compared to more vanilla M&A structures. Parties will need to consider tax consequences early in negotiations and seek alignment on structure, intended tax treatment, and risk allocation.

For example, structures that incorporate research funding payments and back-end options to acquire target assets or equity may raise questions about the tax treatment of the payments vis-à-vis the funder, the target and the target’s equity holders.

The deductibility or capitalization of the funder’s payments versus the current or deferred taxation of those payments at the target or equity-holder level depends on the terms of the deal and the tax laws of the relevant jurisdiction(s). Here, beneficial tax regimes in the target’s jurisdiction (e.g., R&D tax credits or full expensing of certain R&D costs, the latter of which is currently included in U.S. tax legislative proposals) may play a role.

Similarly, deals that include contingent or optional asset or equity sales—with or without earnout payments—may raise notable tax differences, including the potential for two levels of tax in an asset sale versus a possible tax exemption in an equity sale.

Moreover, hybrid arrangements that anticipate royalty streams or other current returns on investment may give rise to withholding taxes that would materially alter economics absent local or double tax treaty relief, requiring early consideration of withholding taxes and risk allocation. If an actual or quasi joint venture is planned, key considerations will include whether the JV constitutes a separate entity for local tax purposes and/or whether any flows are subject to “arm’s length” pricing requirements.

These examples are just a few of the tax considerations that may arise in a hybrid arrangement. Given the panoply of options parties may consider to achieve their commercial and strategic objectives, a particular structure could give rise to any number of tax considerations, making tax a key component across the full life cycle of the deal.