Healthcare M&A hits $65 billion in Q1 as pharma races to fill patent gaps

Pharma and health services companies announced $65 billion in deals during the first quarter of 2026, the highest quarterly total since 2020, as looming patent expirations on blockbuster drugs pushed acquirers to target next-generation therapies with longer revenue runways.

"The desire to fill that pipeline gap helps explain why many of this year's acquisitions involve next-generation modalities that would be expected to have a long patent runway," said Dan Farrell, Health Services Deals Leader at PwC U.S. "Buyers are prioritizing assets with strong fundamentals, reimbursement stability and clearly identifiable value creation opportunities."

Of the $65 billion in pharma deals recorded in Q1, 16 transactions were valued at $1 billion or more, according to PwC data. The largest included Gilead Sciences' $8.2 billion acquisition of cancer biotech Arcelix, Eli Lilly's $7.8 billion purchase of neurology-focused Cantesa Pharmaceuticals, and Merck's $6.7 billion deal for oncology startup Terns Pharmaceuticals. The push reflects the approaching patent cliffs for Merck's Keytruda and Bristol Myers Squibb's Opdivo, two of the best-selling drugs in history, which together generated more than $40 billion in annual revenue at their peak.

The M&A wave extends beyond pharma into health services, where deal value reached $18 billion in Q1 and $10 billion in the second quarter through May 31, PwC data show. Physician medical groups captured a record 46 percent of first-quarter health services deal volume, with year-over-year transaction count rising 18 percent. Cencora completed its $4.6 billion acquisition of oncology platform OneOncology in Q1 and agreed to buy EyeSouth Partners' retina business for $1.1 billion in March. Private equity firm Kinderhook Industries took home health and hospice provider Enhabit private in a deal valued at about $762 million.

Patent cliffs drive the deal math

The urgency behind the M&A surge is rooted in numbers that are hard to ignore. Keytruda, Merck's top-selling cancer immunotherapy, generated $27.2 billion in 2024 sales and faces U.S. patent expirations starting in 2028. Opdivo, Bristol Myers Squibb's checkpoint inhibitor, brought in about $9 billion last year with similar patent timelines. The last time the industry faced a comparable patent cliff — the 2011-2012 loss of exclusivity for Lipitor and Plavix — the affected companies saw revenue drop by 30 percent to 50 percent within two years of generic entry, according to historical earnings reports.

To fill that gap, acquirers are increasingly looking to China, where biotechs have moved from fast followers to sources of truly innovative molecules across oncology, immunology and metabolic disease, the PwC report noted. Chinese startups also offer more favorable deal terms than their American and European counterparts, the report's authors said.

Vertical integration and margin pressure reshape health services deals

In health services, rising medical costs are reshaping deal strategy. The medical cost trend is projected to rise 8.5 percent from 2025 to 2026, according to PwC estimates, compressing margins for insurers and providers alike. That has shifted the focus of acquisitions from pure growth to operational resilience.

"Buyers now are far less inclined to underrate uncertainty around reimbursement predictability and earnings sustainability," Farrell said. "Once they've gained confidence in the stability of the platform, attention shifts toward payer mix, labor model flexibility and the ability to execute the integration roadmap."

Vertical integration is also driving consolidation in medtech manufacturing, as companies seek to control more of their supply chains and improve margins in a challenging pricing environment, according to Cara Walton, director at Wipfli.

With the IPO window remaining tight and mostly confined to startups with approved or nearly approved drugs, more biotechs are expected to sell rather than attempt public listings in the second half of 2026. PwC anticipates that deal activity will increase selectively, driven less by scale and more by the need for operational resilience, AI-enabled efficiency and value-based care capabilities.

This article is for informational purposes only and does not constitute investment advice.