EY 2025 Biotech Beyond Borders Report: Biopharma -- Focus on fundamentals to bounce back

• Shifting policy environment creates regulatory and funding challenges: Policy changes will continue to cause uncertainty for the broader industry and investors, including NIH funding, FDA's ability to timely approve products, potential tariff implications, FTC's challenge to the Intellectual Property (IP) and CMS' impact on drug pricing with Most Favored Nations policy alongside the IRA rebates.
• Efficient capital allocation becomes a key priority: While M&A volume between pharma and biotech was down slightly in 2024 — 54 deals vs. 61 for 2023, deal value dropped dramatically to $77 billion, down from $153.5 billion in 2023. With access to capital remaining constrained, successful companies will be focusing on how to strategically allocate capital, which will entail portfolio optimization, operational cost-saving opportunities, and a tax-efficient supply chain scenario development to preserve cash for dealmaking when the M&A market bounces back.
• Innovation engine of the industry remains healthy to overcome current challenges: In recent years, the FDA has approved more drugs than ever before, a trend that is expected to continue given no policy or funding disruptions to the innovation ecosystem. AI increasingly serves as a key lever for reducing costs and increasing efficiencies in drug development. Around 87% of alliance investment has focused on AI platforms to accelerate R&D.

NEW YORK, June 18, 2025 /PRNewswire/ -- The 35th edition of the Ernst & Young LLP (EY US) Biotech Beyond Borders Report finds that the biopharma industry is currently in a challenging market. The industry is grappling with a unique environment of macroeconomic uncertainty and constrained access to capital such as high interest rates, inflation, shifting regulatory policies and tariff turmoil. This is the time for companies to focus on fundamentals and get ready to bounce back when the conditions improve.

Arda Ural, PhD, EY Americas Life Sciences Sector Leader, says:

"While predictions don't age well in this environment, there is light at the end of the tunnel. The biopharma industry has dealt with periods of uncertainty before, and 2025 will be a year of inflection during which companies will need to focus on the fundamentals, with scenario planning and cash efficiency being top areas of consideration as we watch for positive indicators such as settling tariff policies, pricing headwinds, lowering interest rates and turning to a pro-growth macro narrative."

Biotech Beyond Borders analyzes the state of the industry through a summary of US and European public company revenues, financing, M&A activity, alliances, product approvals and other factors. The report offers executives a deep dive into current dynamics as well as a perspective on the outlook.

"During a challenging time for biopharma and biotech, the industry needs to look for the best ways to be efficient and extend cash runways," says Rich Ramko, EY Americas Life Sciences Sector and Biotechnology Leader. "Successful companies and management teams will be those who embrace AI and new technologies to maximize efficiency and nurture innovation."

Other key findings include:

• IPOs are challenged. 2024 saw a total of 30 IPOs valued at $4 billion, a stark increase compared to the $2.9 billion raised by 18 in 2023, and $1.5 billion in 2022. Despite the increase over the two years prior, IPOs are still well below the 10-year average from 2010–2020. IPO activity is expected to continue to remain muted for the foreseeable future, and companies in the IPO queue are expected to continue partnering with Big Pharma, find alternate funding sources, and look for ongoing cost reduction and efficiency opportunities.
• Venture capital is mixed. Venture capital fundraising by biotechs in 2024 was above pre-pandemic levels — with early venture rounds reaching $15.5 billion — nearly reaching the levels seen in the boom year of 2021. VC has taken on a new normal that skews toward larger rounds but to significantly fewer companies. This trend signals that, amid macroeconomic uncertainties, investors are seeking certainty in compelling scientific and clinical evidence and well-worn management teams.
• Move to royalty deals as an alternative. Royalty transactions could provide $14 billion in deal flow with the total value of these deals growing at a CAGR of 45%. These types of deals are attractive since they offer returns that are dependent on the risk and return profile of a particular drug candidate or program, rather than the macroeconomic factors generally at work in the capital markets.
• China offers risks and opportunities. M&A between pharma and biotech in the US and Europe remained mostly suppressed in 2024 — down to 54 deals vs. 61 in 2023, with deal value dropping to $77 billion compared to $153.5 billion in 2023. Despite a slump in deals and turmoil in the broader political landscape, along with a potential rise in US protectionist policies, deals with China have been thriving. There were 40 alliances with China in 2024, totaling $31.5 billion in value, and as of the end of 1Q2025, deals with Chinese biotechs reached $18 billion — already far surpassing pre-pandemic full-year totals.
• AI a continued area of opportunity. Artificial intelligence (AI) now equipped with agentic capabilities could bring the industry immense productivity gains. Unlike prior technological promises, AI is here to stay and is rapidly reshaping the way the industry does business.

In 2024, US and European public biotech revenues were relatively strong, growing 6.8% year-over-year to $205.4 billion, with public company revenue over the last four years nearly $50 billion more annually than in the four years prior. However, follow-on financings were a particularly big problem in 2024, with biotechs reporting the worst rates since 2016. Follow-on and other financings came in at only $19.9 billion — about $10 billion lower than in 2023, a third of what was seen during the boom years. In companies' efforts to grapple with revenue loss, public biotechs trimmed personnel, dropping the overall workforce by 3.1%.

Looking ahead, there are expectations that the industry will move back toward a greater emphasis on scientific milestones in 2025. A shift toward companies with more mature pipelines, clear clinical milestones, experienced management teams and strong scientific rationale are likely to continue as an environment of haves and have-nots materializes.

On top of this, the implementation of pharmaceutical tariffs will likely impact business with Europe, China and India, as many of these drugmakers hold IP and conduct manufacturing in these countries, on top of an already looming patent cliff, which threatens the value of the US drug market. The disruption of global supply chains, considerations of nearshoring or reshoring manufacturing, the building of strategic stockpiles of certain drugs and the securing of APIs could lead some biopharma companies to localize manufacturing in the US. While the implications of tariffs will apply differently to companies based on their respective business models, companies who can't make the shift can adopt capital allocation strategies that support growth by aligning on long-term goals, rebalancing assets, and communicating a consistent message.

Ashwin Singhania, Principal, Life Sciences Strategy, EY-Parthenon, Ernst & Young LLP says, "While the current business environment means there is no one-size-fits-all advice, to the executives and clients reading this report, we say, focus on fundamentals. Scenario planning around workforce changes, manufacturing networks and a tax efficient supply chain will be key areas for companies to consider so that there is a strategy no matter which way the macro and regulatory direction takes the industry."

To read Biotech Beyond Borders, visit ey.com/beyond-borders.

About EY

EY is building a better working world by creating new value for clients, people, society, and the planet, while building trust in capital markets.

Enabled by data, AI and advanced technology, EY teams help clients shape the future with confidence and develop answers for the most pressing issues of today and tomorrow.

EY teams work across a full spectrum of services in assurance, consulting, tax, strategy, and transactions. Fueled by sector insights, a globally connected, multidisciplinary network and diverse ecosystem partners, EY teams can provide services in more than 150 countries and territories.

All in to shape the future with confidence.

EY refers to the global organization, and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com.

Contact: Carol Piering
Email: [email protected]

SOURCE EY