Pulse Check
Taking the industry’s vitals
Predications are difficult in the current market environment. Trump, and his tariffs, took a bull stock market and almost turned it into a bear quicker than any president in modern history (as of April 2025). If the stock market closes in bear territory – a drop of 20% from a recent peak – it would be the earliest in a new administration a bull market turned into a bear in the history of the S&P 500, which dates back to 1957.
Take a pulse check. Since 2023, the industry approved the first CRISPR-based therapy, achieved more FDA approvals for novel drugs than ever before and brought the first therapy for MASH to market. “Uncertainty remains with a new administration, but the industry’s core strengths are intact,” underscored Jonathan Norris, managing director of HSBC Innovation Banking.
Let us put our ear to the stethoscope and listen to the heartbeat of the industry. If I were to make predictions about how the Trump administration would impact the financial environment it would be outdated by the time this hits print anyways.
Big Pharma: Healthy organs
According to Evaluate Pharma, pharmaceutical product sales are forecasted to increase by US$82 billion in 2025, which is the largest jump since the Covid-19 pandemic. Additionally, combined industry revenues are predicted to top US$1 trillion for the first time ever. Seems like healthy fundamentals to me.
For sales, GLP-1 antagonists dominate the top table. Novo Nordisk’s Ozempic and Wegovy along with Eli Lilly’s Mounjaro and Zepbound are predicted to generate US$70 billion in combined sales in 2025, according to Evaluate Pharma’s consensus forecasts. Sales of Merck’s Keytruda are set to peak in 2025. Patent expiration is set for 2028. However, the firm plans to file for a subcutaneously administered version of the drug in 2025 to extend its runway. “We see the KEYTRUDA LOE as more of a hill than a cliff,” Robert Davis, Merck’s chairman, president, and CEO said in his JPM presentation.
The loss of exclusivity (LOE) due to expiring patents on high-revenue products is one of the most pressing issues in the pharma space. “The LOE wave will remain a critical industry topic through 2028 when the impact of the LOE is expected to reach 6.7% of revenue and an estimated US$300 billion lost,” said Arda Ural, life sciences sector leader at EY Americas.
Patent cliff or hill, call it what you will, it is set to drive M&A; 77% of executives in a Deloitte survey expect M&A to increase in 2025. “With the pending patent cliff, portfolio reshaping and deal-making have been key topics over the past year,” said Greg Rotz, pharmaceutical and life sciences advisory leader at PwC US.
The motive is simple: Big Pharma is hungry to fuel pipelines. In 2024, total R&D expenditure increased through acquisitions and organic growth, reaching 16.3% in absolute terms, and exceeding 25% as a percentage of sales for the first time, revealed IQVIA. Joaquin Duato, chairman and CEO of Johnson & Johnson, succinctly summarized this in his JPM presentation: “M&A and R&D are the ways we create significant value and build our pipeline.” Albert Bourla, chairman and CEO of Pfizer, reiterated the sentiment in his JPM presentation: “If 2024 was a year where commercial execution was the forefront… in 2025, R&D and the advance of our pipeline is taking number one priority.”
However, increased investment does not guarantee increased returns. A study in Drug Discovery Today analyzing the 200 largest pharmaceutical firms, novel drug approvals, and over 80,000 clinical trials between 2012 and 2023 found that though investment in internal R&D continues to grow, currently exceeding US$3.5 billion per novel drug, there has been a five-decade decline in pharmaceutical R&D efficiency. “While in-house pipelines are necessary, they are not sufficient at current levels, forcing firms to buy innovation,” said Ural.
The heart delivering the life blood to the industry is, of course, biotech: “Historically, 70% of the top 10 best-selling products originated from external sources, highlighting pharma’s heavy reliance on biotech,” Ural continued.
Biotech: The industry’s heart beats again
David Schaffer, executive director of QB3, a company with several incubators in the Bay Area, put the state of biotech bluntly: “We are currently in the longest biotech bear market in history.” While 2022 and 2023 were a biotech heart attack (perhaps causing a few real ones), 2024 delivered a much-needed AED. It appears that 2025, albeit with some continued caution, could see the biotech heart beating more healthily again.
The preceding ‘sugar high’ of 2021-2022 caused the Initial Public Offering (IPO) artery to clog considerably. While 2024 saw a slight uptick in the number of US biotech IPOs (23 compared to 20 in 2023), performance remained mixed. “There were more IPOs in 2024 than in 2023, but some companies failed due to unsuccessful clinical trials. Others had distant milestones or were too early in development and struggled,” Christiana Bardon, managing partner of MPM BioImpact elaborated.
The cautious optimism residue from 2024 seems to have stuck for 2025. The first cohort of 2025 IPOs has shown relatively better performance compared to 2024 deals. Investors are showing appetite for companies with strong clinical data. Companies with de-risked, later-stage assets seem better positioned for successful debuts. A significant pipeline of private biotech companies has been stored in the atria for a more oxygenated market before being pumped out into the public markets. Many raised private funds, allowing flexibility to choose the right window. “The best biotech companies do not want or need to go public. The mezzanine financing environment has been strong and healthy. If companies can get great valuations and raise enough capital privately, there is no reason to go public, especially since public markets are more critical of valuations,” said Bardon.
Expected interest rate cuts could encourage more companies to test the public markets. “Over the past two decades, we observed an inverse correlation between Fed rates and IPO activity,” said Ural. “If Fed rates continue to decline throughout 2025, historical patterns suggest a rebound in the IPO activity.”
Venture capital: Increasing industry oxygen
Venture capital (VC) investment mirrors the broader market trends: a shift from the ‘growth-at-all-costs’ mentality of the pandemic era towards more selective, value-focused funding. The narrative for 2024 and into 2025 is strategic realignment, and deep breaths.
Investors are favoring fewer but larger deals, concentrating on companies with assets in later stages of development (phase two and beyond) that have clearer paths to commercialization and are somewhat de-risked. The median venture round size remained high in 2024 and early 2025, often exceeding the US$100 million mega round threshold. “Mega rounds dominated in 2024, with 106 deals far surpassing 2023 totals. These rounds involved large syndicates, where investors not only wrote big checks but also reserved capital for future support. This approach minimized next-round risk but inflated post-money valuations, making future returns uncertain,” explained Norris.
Though early-stage (Seed, Series A) deal volume decreased from pandemic highs, it stabilized through 2024. The average deal size, particularly for Series A, increased in 2024. January 2025 saw a strong start with US$3.4 billion in VC funding, up 76% year-over-year.
There is growing optimism for increased exit opportunities in 2025. This provides VCs with needed liquidity and delivers oxygen back to the body. Big Pharma’s appetite for innovation is expected to drive M&A, particularly for earlier-stage assets, as buyers navigate premiums for later-stage companies.
While the body is recovering, a healthy heartbeat will be the only way for it to survive. It is less about a closed door and more about finding the right key – strong data and a compelling value proposition – to unlock it, said Donna LaVoie, founder and CEO of LaVoieHealthScience, a communications company helping biotechs convey their stories to the market: “Biotech firms often struggle with making their innovations accessible to a wider audience, including investors and policymakers. While specialized investors understand the technical details, most do not have that level of expertise. This is why pharmaceutical companies with broader market appeal attract more investor interest. Biotech firms need to shift from focusing solely on complex science to showing the tangible, real-world impact of their work.”
Securing funding is undoubtedly more competitive, demanding strong science, clear milestones, and operational efficiency. However, substantial capital is still flowing into biotech, particularly towards companies demonstrating significant therapeutic potential and addressing unmet needs. This focus on fundamental value, rather than market froth, underscores the sector’s enduring health.
Article header image courtesy of Johnson & Johnson