Several characteristics of companies in the life sciences and healthcare sector provide ready avenues for activists to exploit.
Valuation disconnects and pipeline uncertainty are one of the primary drivers of activist activity. Many life sciences companies, particularly mid-cap biotechs and specialty pharma businesses, trade at valuations that shareholders believe undervalue their underlying asset base—whether clinical pipelines, intellectual property portfolios or commercial-stage products.
Around one in six companies on the Nasdaq Biotechnology Index are currently trading below their cash reserves, with some investors pushing for capital to be returned as an alternative to continued allocation to less certain R&D investments. Patent cliffs—with USD47 billion in global pharmaceutical revenue at risk on average over the next four years according to the IQVIA Institute for Human Data Science—and pipeline failures can further depress share prices, creating another entry point for activist funds.
Encouraging or responding to M&A activity is another significant catalyst for activist campaigns (whether pushing for a sale or opposing an announced transaction) and is the most common campaign objective. Across all sectors globally, 44% of campaigns in 2025 had an M&A thesis (which is consistent with the four-year average) but this figure masked a dramatic shift across the year.
M&A activism rose to 54% of campaigns in H2 and 64% in Q4, the highest proportion in five years, as transaction activity accelerated in the second half of the year. Looming patent expirations exert particular pressure on pharmaceutical companies to act through M&A to address this issue, as evidenced by the fact that more than half the transactions in 2024 by the largest pharma businesses targeted Phase 1 or earlier-stage assets.
Operational and margin pressure also creates vulnerabilities. Cost inflation (including as a result of newly imposed—albeit shifting—tariffs), competitive dynamics and pricing reform notably in the United States, where the federal government has introduced policy measures designed to require pharma companies to price their products sold in the U.S. at levels that are no higher than those paid by consumers for similar products overseas are impacting margins.
In response, activists may argue for cost restructurings, portfolio rationalizations, or divestitures of non-core assets in an effort to improve financial performance, focus management and increase share prices. U.S. policy dynamics—from the challenges of securing FDA approvals for new therapies to a reduction in public health funding—are creating an uncertain and unpredictable outlook, increasing the likelihood of further activist campaigns in the year ahead.
Meanwhile, the regulatory regime for shareholder communications and proxy contests in the U.S. is evolving. Reforms introduced by the federal government and the SEC—including an opt-in system that allows shareholders (other than registered investment advisors subject to fiduciary standards) to provide a standing instruction to automatically vote their shares in line with the board’s recommendation, continuing efforts to impose restrictions on class-action lawsuits and executive orders aimed at curtailing the influence of “politically motivated” proxy advisers—aim to reduce the influence of proxy firms and large passive shareholders. Taken together, these measures are expected to result in a tilting of the balance in favor of boards and management teams.
Governance and capital allocation concerns round out the picture. Board composition, executive compensation, the rates of capital returned to shareholders and discipline over R&D spending provide governance-focused activists with a platform. E&S-related activism, including campaigns focused on drug pricing and access, can also play a role, particularly in the U.S. and Europe. Meanwhile, companies that benefited during the COVID-19 pandemic now face questions about their strategic direction as demand has normalized over recent years.
Recent campaigns: a snapshot
Several high-profile campaigns in 2025 illustrate these themes in action.
- Kenvue, the Johnson & Johnson consumer healthcare spinout, was targeted in 2025 by multiple activist funds (Starboard Value, Third Point, and Toms Capital Management) concerned that the company was underperforming its peers. In response, Kenvue agreed to appoint three new board members, including Starboard's Jeff Smith, and then agreed to be acquired by Kimberly-Clark in a transaction that valued the company at almost USD49bn.
- Becton Dickinson (BD) faced similar demands; Starboard urged the board to separate its life sciences division, leading to a recently completed USD17.5bn Reverse Morris Trust transaction that combined BD's biosciences and diagnostic-solutions business with Waters Corp.
- Pfizer was also a target for Starboard, which launched a campaign highlighting alleged failures in the company’s R&D productivity and M&A strategy, as well as concerns over falling COVID-related sales and a declining share price. Here, Starboard ultimately refrained from nominating directors and eventually exited its position.
- At Medtronic, Elliott Management acquired a significant stake and, following what the company described as “constructive engagement,” Medtronic added two independent directors to its board and created new board committees focused on, among other things, accelerating growth (including through tuck-in M&A), improving operational performance and potential divestitures.
- In Japan, Astellas was targeted by Farallon Capital, which acquired more than 3% of the company’s shares and called for more aggressive cost-cutting and R&D restructuring, driven by concerns over significant M&A spending (over JPY1.5 trillion/USD10bn since 2016) and the expiry of the patent for its blockbuster cancer drug Xtandi, which lapses in 2027.
- In Denmark, Novo Nordisk saw activist hedge fund Parvus Asset Management build a stake following leadership changes—the chairman and six independent directors stepped down, while the CEO was dismissed—as the company's share price fell approximately 30% in 12 months amid slowing profit growth and competitive pressure from Eli Lilly in the U.S. obesity market.
- Notably, 12.2% of funds targeting healthcare companies went public with their demands globally in 2025, the highest proportion in five years, according to Barclays research.
What should boards be doing in response?
Proactive shareholder engagement, strategic discipline and clear and consistent communications are essential for boards in a more volatile activist environment.
Know your shareholders
- It is critical that boards maintain a detailed understanding of their shareholder base and make sustained efforts to build rapport with individual fund managers at each of their primary institutional investors. Regular engagement is essential to gauge these managers’ views on the company’s business, management and strategy, and to assess how they might respond to activist demands such as calls for board changes, asset divestments or capital returns. Having this understanding allows boards to predict where an activist might find support for specific proposals, and to identify potential allies for the board among the company's existing investor base should they be required.
- Boards that do not engage proactively with their most important investors may find themselves on the wrong side of activist campaigns. If shareholders feel ignored, they may be more inclined to support activist proposals simply because activists are perceived as providing greater engagement. Regular outreach gives boards the best chance of ensuring their shareholders will not side with activists out of frustration with a company's lack of engagement, transparency or adherence to best practices.
Clear and consistent strategy implementation
- Boards should evaluate their exposure to activist risk by assessing whether their company's share price reflects the company’s intrinsic value, whether their portfolio is optimally configured and whether their governance arrangements meet current best-practice expectations. Conducting a regular “activist lens” review—essentially stress-testing the company's business plan assumptions, governance and stock valuation versus competitors—is advisable. The campaigns against Pfizer, Becton Dickinson, Novo Nordisk, and Astellas were all triggered in part by share price underperformance relative to peers.
- Boards should ensure that the company's long-term value creation story, including its R&D pipeline strategy and capital allocation rationale, is communicated consistently to the market. Inconsistent or unclear messaging about strategy creates vulnerability; shareholders may become receptive to activist proposals if they do not fully understand the board's plans and therefore cannot measure the impact of strategic decisions on business performance.
- Where applicable, companies should be prepared to explain their capital allocation decisions; here, timely and robust disclosure can pre-empt investor concerns regarding the prudent use of their money and strengthen their confidence in directors’ and management’s ability to appropriately position the company for longer-term success.
- Boards should periodically assess and refresh their governance profile, evaluate their composition and performance and those of their management teams, as well as the company’s compensation framework.
- Boards, together with their management teams and financial and legal advisers, should also regularly assess the company’s mid- and long-term strategic plans, informed by credible management financial projections, with a view to deciding whether maintaining the status quo is in the best interests of shareholders and other stakeholders, or another course of action is advisable or even required.
Be ready—engage and listen
- Boards and management teams should have a pre-agreed response protocol in the event of an activist approach. This includes identifying external advisers (legal, investment banking, and communications), establishing a rapid-response team and ensuring the board has discussed and agreed on key strategic positions in advance. It is critical for a board and the company to speak with one voice in the face of an activist campaign. Activists and shareholders will seize on inconsistent messages or any indication that a company is not well organized or does not believe uniformly and with conviction in its own plan.
- Boards should not be pre-disposed to quickly dismiss suggestions simply because they are made by an activist. The “not invented here” response to proposals is generally shortsighted and counterproductive. Activists regularly spend significant time developing proposals for a company, which are often thoughtful and accretive. Boards should be open to constructive engagement where an activist's proposals could enhance value, while at the same time being prepared to defend their position (potentially publicly) where they believe an activist's thesis is flawed. It is important to make this determination after rigorous analysis of any proposals so as not to provide activists with ammunition that a board is entrenched and unwilling to consider new ideas.
Prepare to live with long-term activists
- We are seeing more activist funds taking stakes (occasionally up to 15 or 20% in smaller companies) and remaining as investors for several years, from where they seek to influence decisions and position companies for an eventual sale or other liquidity-driven transaction.
- Boards therefore need strategies not just for initial activist defense but also to manage ongoing relationships with activist shareholders who want to be involved in major decisions. Long-term activists may pursue incremental changes, such as nominating chairs or other directors, removing board members or blocking non-core acquisitions, which differs from the commonly held perception of their tactics (i.e., to take a position, push immediately for change and then exit their position when the share price rises).
Looking ahead, we expect the combination of significant M&A activity, ongoing valuation disconnects, pipeline uncertainty, a historic patent cliff cycle, U.S. policy dynamics (including tariff volatility, pricing reforms and reduced public health funding) and competitive pressures in the life sciences and healthcare sector will result in continued activist attention.
Boards that proactively address valuation mismatches, maintain open communications with their shareholders and articulate a convincing long-term strategy will be best positioned to navigate this more uncertain environment.
