M&A activity drives momentum in biotech and healthcare

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Diabetes affects an estimated 5.8 million people in the UK and this number has been growing. The market opportunity for diabetes medication remains huge and this is one factor driving interest in the sector. We have also seen significant M&A activity as big pharmaceutical companies buy biotech companies for their innovative treatments. Investment trusts in the Biotechnology and Healthcare sector are performing well but continue to trade at an average discount of 14%.”

The Association of Investment Companies (AIC) asked biotech and healthcare managers about innovation, M&A activity and whether government policies have had an impact on their portfolios. Their answers are collated below.

Developments in diabetes drugs

Trevor Polischuk, Manager of Worldwide Healthcare Trust, said: “We continue to be excited about the GLP-1 space and the multitude of clinical benefits it is bringing to patients. Most don’t know that this ‘new class’ of GLP-1 drugs is actually over 20 years old – and has undergone many cycles of innovation: improved efficacy, improved tolerability, improved ease of use. And the weight loss of Wegovy and Zepbound is incredible – but that is not where my excitement lies.

“Rather, it is the beneficial effect on so many other disease pathways in your body – that GLP-1s, when used alone or in combinations, can dramatically impact cardiovascular health and treat a number of metabolic diseases. Today we are just at the beginning of this revolution. Eli Lilly remains the clear leader in the space and represents our largest holding in the portfolio. But given the mega-size of the opportunity, we recognise there is opportunity for others.

“One provocative small and mid-cap biotechnology company we hold is Structure Therapeutics, a company that possesses early and mid-stage assets that could be the perfect complement for GLP-1 combination therapies in the future.”

Oliver Kenyon, Senior Director of RTW Biotech Opportunities, said: “Obesity is one of the largest pharmaceutical opportunities globally, with some analysts forecasting $150 billion in annual peak sales. RTW Biotech Opportunities is actively positioned to benefit through two private companies we helped create, Kailera and Corxel. Both are advancing next-generation treatments, either as oral formulations or less frequent injections, aiming for better efficacy and fewer side effects.

“These companies license assets from China, where innovation is accelerating and success depends on having local presence. Corxel has started a US Phase 2 trial, which is expected to read out in the first half of 2026. Kailera recently raised $600 million in Series B financing, anchored by Bain and joined by CPPIB and QIA, and is preparing to enter global Phase 3 trials. We think both Corxel and Kailera are promising investments that will be on the radars of large pharmas without a leading obesity programme.”

M&A activity

Geoffrey Hsu, Manager of Biotech Growth Trust, said: “The Biotech Growth Trust held significant positions in Akero Therapeutics (acquired by Novo Nordisk for up to $5.2 billion) and Avidity Biosciences (acquired by Novartis for $12 billion) in October. We expect continued M&A activity over the next several months as big pharma companies facing patent expirations on key blockbuster products look to acquire biotech companies with innovative products to maintain revenue growth. Many of the positions held in the fund are attractive acquisition candidates in our view.”

Ailsa Craig, Portfolio Manager of International Biotechnology Trust, said: “We have had nine acquisitions among our portfolio companies in 2025 alone, and 34 since 2020, serving as a significant driver of returns. This activity has enabled us to recycle capital into other promising companies that may also be potential acquisition targets.

“With the looming patent expiries facing pharmaceutical companies in the next few years, we expect M&A activity in the biotech sector to continue for the foreseeable future. Last year, biotech companies were responsible for more than 70% of new drugs approved – a significant shift from just a decade ago when most new drugs originated in pharmaceutical R&D departments. This means that acquiring biotech companies is increasingly the most effective way for pharmaceutical companies to add innovative treatments to their pipelines and protect their long-term revenues.”

James Douglas, Co-Fund Manager of Polar Capital Global Healthcare Trust, said: “Consolidation has been an important long-term theme the trust has been highlighting for several years. After a rather lacklustre period for M&A due to rising interest rates and policy uncertainty affecting companies’ ability to plan ahead, we have seen an uptick in acquisitions recently, given some of the policy overhangs started to lift and fiscal policy began to ease.

“We believe consolidation will continue: large pharma needs to continue to replenish its pipeline to make up for lost revenue from loss of exclusivity. But we also believe that M&A need not be confined to the biopharmaceuticals space: the medical technology, healthcare services and life sciences sectors could also benefit from consolidation.”

Oliver Kenyon, Senior Director of RTW Biotech Opportunities, said: “RTW Biotech Opportunities has been a clear beneficiary of the recent uptick in biotech M&A, with five acquisitions announced since the end of June across our public and private holdings. Notable transactions include Avidity acquired by Novartis, Akero by Novo Nordisk, and Genmab acquiring Merus. We recycled some of the uplifts from these deals into NAV-accretive share buybacks, adding $15 million to our $30 million budget set in 2023.

“We believe this is only the beginning of a broader wave of M&A, driven by large pharma facing a wall of patent cliffs, with $230 billion in revenues expected to be lost by 2030. While earlier in the year buyers focused on later-stage or commercial assets, we are now seeing signs of interest shifting earlier-stage. We remain focused on identifying companies with strong clinical momentum that could fill strategic gaps in pharma pipelines.”

Trevor Polischuk, Manager of Worldwide Healthcare Trust, said: “M&A in the biotechnology space inflected in mid-2022 when small and mid-cap biotechnology valuations really bottomed. And the buying has not stopped since. To capitalise on this, we have constructed a proprietary M&A basket: a group of hand-selected (by us!), small and mid-cap biotechnology stocks that we think are either targets for take-outs or at least will rise in sympathy when other companies get bought.

“We consistently rebalance and remake the basket every quarter and it has created material returns for the trust that we expect to continue well into 2026. Whilst biotech valuations are now off the floor, the global pharmas still need new assets to power growth in 2030 and beyond. So we think M&A will continue and the pace will accelerate, as will the premiums. Look at the saga surrounding Pfizer, Novo Nordisk, and Metsera. Tip of the iceberg?”

Impact of government policies

Marek Poszepczynski, Portfolio Manager of International Biotechnology Trust, said: “The appointment of Robert F Kennedy Jr as Secretary of Health and Human Services introduced unease due to his controversial views around vaccines. The listed biotech sector was hit hard in the first half of this year, with tariff uncertainty coinciding with more biotech-specific policy concerns regarding the FDA (the US regulator). The upheaval at the FDA was driven by the departure of industry-friendly figurehead Peter Marks and wider headcount reductions fuelling fears of disruptions to the drug approval process. At the same time, the revival of the ‘most favoured nation’ pricing model via an executive order added to the uncertainty.

“However, since then we have seen a significant step back from worst-case scenarios on trade and a more constructive policy environment for the healthcare sector. Biotech is less exposed to the threat of tariffs and pricing reform than large cap pharmaceutical companies, while FDA approvals have continued.”

James Douglas, Co-Fund Manager of Polar Capital Global Healthcare Trust, said: “The early months of the Trump administration brought significant uncertainty and volatility to the healthcare sector and the broader market. Specifically for healthcare, actions taken by the administration and the Department of Government Efficiency (DOGE) raised concerns about the operations of several key federal health agencies, including the Food and Drug Administration (FDA), National Institutes of Health (NIH), and Centers for Disease Control and Prevention (CDC). While all three are essential to the US healthcare system, it was the uncertainty surrounding the FDA that caused the most immediate concern within the biopharmaceutical industry. Additionally, President Trump’s push to align global drug prices through a ‘most favoured nation’ policy, combined with potential tariffs, created a significant overhang for the sector.

“Additionally, we got more clarity on tariffs. President Trump announced a 100% tariff on branded pharmaceutical imports. While the headline rate appears severe, the duty will not apply to companies building or expanding manufacturing facilities in the US, including projects under construction. In recent months, most large pharmaceutical companies have announced significant investments in US capacity, meaning these tariffs should not apply to their imports. Although the finer details are yet to be clarified, the outcome appears relatively benign for the industry.

“Though many of the policy overhangs are starting to clear, the trust has remained significantly underweight the pharmaceuticals sector. Our stance on pharmaceuticals is informed by our view that companies in this sector generally exhibit mature revenue and earnings profiles, and that more compelling opportunities exist in other sectors such as biotechnology, medical technology and services.”

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Notes to editors

1. Source: theaic.co.uk / Morningstar (as at 11/11/25).
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