The post-COVID slump in the pharma industry may be on the outs as mergers and acquisitions activity picks up again, according to a report out of EY this week.

Consolidation in the pharma world jumped 34% year-over-year in 2023 and that trend is expected to continue through 2024.

The annual report of global M&A investment in the pharma and life sciences sectors, found that pharma M&A spend rose to $191 billion in 2023, compared to $142 billion in 2022. 

Among the top targets for deals was oncology, accounting for $65.2 billion of investments.

The return to pharma M&A is primarily being driven by topline pressures as well as drugs losing patent protection in the next several years. Facing patent cliffs, many drugmakers are turning to acquisitions to secure new revenue streams.

“In 2023, we witnessed the resurgence of significant dealmaking within big pharma,” said Subin Baral, global deals leader of life sciences at EY, in a statement. “Faced with the imminent patent expiration of several key products in the next five years, the biopharma industry recognizes M&A as a strategic avenue for securing growth.”

He added that the key challenge for these companies is to ensure they make the right deals now to deliver lasting value into the future.

Important to note, the majority of M&A investment – 69% – came from Big Pharma in 2023. That’s a significant increase from 38% in 2022, signalling some top-heaviness in the ranks. 

Among the players who went out on a dealmaking spree, Pfizer led the pack with its $43 billion acquisition of Seagen. Merck’s $10 billion Prometheus acquisition was also one of the largest seen last year.

The report also outlined three reasons why the rising M&A trend is expected to continue in 2024. 

For one, the pharma industry will face continued revenue pressures within the next five years and must attain inorganic growth to branch out. 

It’s also a buyer’s market, which favors companies that acquire rather than sit back and wait.

Finally, the report noted that the pharma industry holds high levels of what it calls “M&A Firepower” – or a company’s ability to conduct M&A based on its balance sheet. 

The report estimates that the industry holds $1.37 trillion in dealmaking capacity, a number much higher than in previous iterations of the report, save for 2022.

Oncology and rare diseases remain the areas that will likely see the most continued growth in investments. Oncology has always been a top contender, but rare diseases will become increasingly sought after as well, as “legislation such as the IRA [is] unlikely to affect the price point for orphan drugs,” the EY report stated.

In a statement, Baral added that life sciences companies must understand that doing the right deals is a continual, lengthy process rather than a single transaction or silver bullet.

“They will need the right people, processes and governance to make each partnership work on its own unique terms,” Baral said. “Even with the unsettled operating environment we expect to see continuing into 2024, the life sciences companies that can recognize and deliver on these dealmaking imperatives will be well placed to secure value far into the future.”