The life sciences industry is well positioned for growth in 2025, fueled by strong investor interest and technological advancements, especially in AI.
Life sciences venture capital (VC) funding and IPOs have picked up in 2024, and anticipated Federal Reserve interest rate cuts will likely further accelerate this trend. Lower borrowing costs could also boost M&A in the sector after a lull in recent years.
Innovations in biotechnology, genomics, and drug discovery are helping drive the creation of novel drugs and therapies. Private equity firms are also raising life sciences-focused funds and investing in the sector as opportunities grow.
Life sciences experts will discuss forces set to shape the industry when Goodwin and KPMG cohost a symposium at the JP Morgan Healthcare Conference in San Francisco on Jan. 15. Below are five charts illustrating important trends we’re thinking about as we approach the conference.
Life Sciences VC Funding Rebounds
Life sciences VC funding reached $34 billion at the end of November, already exceeding the $30 billion for the entirety of 2023. If this year’s pace continues, funding would reach $37 billion by the end of 2024. The growth in funding underscores renewed investor confidence, particularly in life sciences companies using AI for purposes such as drug discovery.
Still, investors have remained cautious, favoring more-established companies. Later-stage VC deals accounted for a greater share of all life-sciences deals this year, according to data provider PitchBook. As the economic outlook improves, investors may become less risk-averse and more interested in earlier-stage companies.
Life Sciences IPOs Start to Bounce Back
By late October, 18 life sciences companies had gone public, compared with 11 public offerings in all of 2023. A spate of biotech IPOs occurred in the third quarter of this year, coinciding with the period when the Fed began lowering interest rates.
Although the life sciences IPO market is perking up, activity is still much lower than in 2020 and 2021, when low interest rates, large federal fiscal stimulus, and a booming stock market underpinned activity.
Investors are gradually returning to the market, showing a preference for companies with clear plans to turn a profit. A fuller recovery in IPOs will likely materialize next year due to improving economic conditions, including easing inflation, potential interest rate cuts, and a stronger stock market. Additionally, a backlog of companies that delayed public offerings during recent market volatility will make a push to go public.
Life Sciences M&A Positioned to Grow
Signs of a rebound in life sciences M&A are brewing. Deal value reached $128 billion at the end of November, nearing 2023’s full-year total of $140 billion.
Pharmaceutical companies are acquiring firms with cutting-edge technologies across a range of therapeutic areas. They are, for instance, seeking deals that enhance their portfolios with antibody-drug conjugates (ADCs), obesity treatments, gene-editing therapies, and digital therapeutics.
High levels of available capital among PE firms, declining interest rates, and potentially less antitrust scrutiny under the incoming presidential administration could spur more dealmaking next year.
FDA Novel Drug Approvals Climb
The FDA’s Center for Drug Evaluation and Research (CDER) approved 55 novel drugs in 2023, the second-highest count in the past three decades. Many of the novel drugs approved were intended to treat rare diseases.
Approvals remained elevated in 2024, with the FDA approving 44 novel drugs as of early December.
The growth in novel drug approvals in part reflects the FDA’s long-running efforts to expedite drug approvals, a trend that could continue under the incoming presidential administration.
AI Innovation in Life Sciences Soars
AI has significant potential to boost the life sciences industry by, for instance, accelerating drug discovery. It is already improving diagnostic accuracy and personalizing patient care as approvals of AI-enabled medical devices surge.
FDA approvals of AI-powered medical devices reached a record high of 221 in 2023, according to data tracing back to 1995. In the first half of 2024, the FDA approved 107 AI-powered medical devices, suggesting the amount could reach—or even surpass—2023’s total.
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