Ted Yu co-authored this article.

Between 2025 and 2030, the pharmaceutical industry faces a concentrated patent expiration cycle. Estimates are putting branded revenue at risk in excess of $200 billion,¹ with that risk driven by franchises that each generate annual revenues that would rank them among the Fortune 500 as standalone businesses.

For example, Merck’s Keytruda alone generated $29.5 billion annually, and key patent protections expire in 2028.² Another example is Bristol Myers Squibb, which has been managing the Revlimid loss of market exclusivity and carries Eliquis exposure beyond that, as Eliquis patent protection extends only into 2028. AbbVie absorbed the Humira biosimilar wave and has been executing an expensive pivot to Skyrizi and Rinvoq. Pfizer is restructuring its revenue mix after the COVID-era windfall collapsed faster than its pipeline could absorb.

These are likely not isolated. Instead, they could be representing pressure that will set the tone for the entire biopharma ecosystem.

This means that, for many companies, internal R&D will not be able to solve a 2028 revenue problem. Drug development timelines can often run 10 to 15 years from discovery to approval, and Phase III failure rates mean even aggressive internal pipelines carry poor expected value as revenue replacement vehicles on a fixed timeline.

But acquisitions can move faster than internal R&D as they are driven by the structural imperative of looming patent expirations and the revenue gaps they create.

Deal evidence is consistent with that framing. AbbVie acquired ImmunoGen for approximately $10.1 billion.³ Novartis acquired MorphoSys for approximately $2.9 billion.⁴ AstraZeneca bought Fusion Pharmaceuticals for $2 billion upfront and $400 million in milestone payments.⁵

Strategic acquirers are usually not shopping for bargains but are instead solving a time-sensitive problem with disclosed consequences for earnings guidance. That means a different negotiating posture is needed for every private biotech CFO sitting on a clinical-stage asset with differentiated data.

Will Big Pharma’s Patent Cliff Revive Biotech Markets?

This acquisition wave is boosting headline deal volume, yes, but it is doing more than that. In effect, it is quietly repairing three separate fault lines in the IPO market. Together, those shifts begin to restore the basic conditions that allow new issuers to come forward with confidence.

Valuation Precedents

Premium acquisitions establish valuation precedents. When a large-cap pharma pays a meaningful premium for a clinical-stage asset, it recalibrates the comparable company analysis that bankers use to price the next IPO. Public comps re-rate upward in response, and the valuation gap between what a company can achieve in a private financing versus what it can achieve as a public company narrows in favor of going public.

At the same time, many private companies still lack leverage. For well-capitalized buyers, that dynamic creates an attractive entry point where strategic acquisitions can be executed at valuations that would look far less compelling in a fully reopened IPO window.

Recycled Capital

Acquisitions also recycle capital back to venture investors at premium returns. General partners who closed funds in 2018 and 2019, sitting on unrealized positions through a brutal 2022–2023 drawdown, receive liquidity events that let them demonstrate DPI (distributions to paid-in capital) to limited partners and begin raising successor funds. New fund formation replenishes the pipeline of companies that will reach IPO-readiness in 24 to 36 months.

Functioning Exit Ecosystem

Lastly, premium M&A tells generalist crossover investors that biotech has a functioning exit ecosystem. Healthcare-dedicated funds allocate through down cycles, but IPO books are not filled by dedicated healthcare funds alone. They often require large, diversified asset managers to anchor the deal, and those healthcare-dedicated funds need confidence that the market they are entering has durable buyers on the other side. Demonstrated M&A premiums from strategic acquirers can provide that assurance in a way that index performance alone cannot.

This pattern is consistent across a prior cycle. For example, the 2012–2015 M&A wave (anchored by Gilead’s $11 billion acquisition of Pharmasset and Roche’s acquisition of Intermune) preceded the 2014–2015 biotech IPO boom.

Right now, the XBI’s recovery from its 2022–2023 lows near $60–70 to approximately $125–135 in early 2026 is the index reflecting this repricing in real time.⁶

When Reading the XBI, Red Means Stop, Green Means Go

Many finance executives use the XBI as a sentiment thermometer: up means receptive, down means wait. But when timing an IPO, that delay can prove expensive. Instead of using the index as a forward-looking indicator of improving conditions, it becomes a rearview mirror.

The XBI is modified equal-weighted, which makes it meaningfully different from the Nasdaq Biotechnology Index, which is cap-weighted and dominated by large-cap names. Equal-weighting means the XBI is sensitive to small and mid-cap biotech performance, which is precisely the segment that is often most relevant to pre-IPO companies benchmarking public comps. When the XBI rises on the back of M&A premium expansion and crossover fund re-entry, that is a durable signal. When it rises on the back of macro risk-on sentiment and retail flows, it can reverse in a quarter.

The current recovery carries institutional characteristics worth examining. FDA review timelines have held steady despite staffing losses. Interest rates, while still elevated relative to 2020–2021, have moved off peak levels, reducing the discount rate drag on long-duration biotech assets. Sector-specific re-ratings have appeared in RNA, GLP-1-adjacent platforms, and targeted protein degradation, for example:

• Novartis & Avidity Biosciences (Feb. 2026): In a $12 billion deal, Novartis acquired San Diego-based Avidity Biosciences and its Antibody Oligonucleotide Conjugate platform, which delivers RNA therapies to muscle tissue for neuromuscular diseases.
• Pfizer & Metsera (Nov 2025): A $10 billion deal to acquire Metsera. Metsera is a clinical-stage biopharmaceutical company focusing on medicines for obesity and cardiometabolic diseases.
• Bristol Myers Squibb & Orbital Therapeutics (Oct. 2025): A $1.5 billion deal to acquire Orbital Therapeutics and its circular RNA platform, which reprograms immune cells in vivo and has a lead autoimmune disease candidate targeting B cell depletion.
• Merck & Cidara Therapeutics (Nov. 2025): A $9.2 billion deal to acquire San Diego-based Cidara and its lead asset, CD388, which is a potentially long-acting, strain-agnostic antiviral for influenza prevention.

When a comparable company goes public and trades above issue price for six to nine months, it creates a positive reference point for the next issuer in that therapeutic category. Successful IPOs invite adjacent IPOs, and the clustering tends to be tight. Missing the initial 18 months of a reopened window can mean waiting for the next cycle, and not catching the tail of this one.

A CFO advising their board on timing should be tracking the XBI headline and the composition of recent IPO syndicates: whether large asset managers are participating as anchors, and whether crossover rounds are being led by dedicated healthcare funds or generalists re-entering the sector. The quality of the capital matters as much as the level of the index.

Building the Infrastructure Now

IPO readiness should not be an “if we go public” workstream. Done right, IPO readiness applies to public exits but also maximizes optionality across every exit path simultaneously.

In our experience, revenue recognition disputes on collaboration agreements have produced material purchase price adjustments and delayed closings in multiple transactions. Acquirers now price governance gaps, audit quality, and stock-based compensation documentation into their offer mechanics. A company with a top-tier audit relationship, clean technical accounting and valuation policies, and documented internal controls can close faster and at less risk of retrade.

We have also seen that the core infrastructure pillars require lead time that most companies underestimate. Establishing a new audit relationship and completing a first-year audit may require 6 to 12 months before an S-1 can be filed with audited financials. Documenting revenue recognition policies against ASC 606 for collaboration agreements could take two to three quarters to do properly, with another one to two quarters for auditor validation. Board composition adequate for public company governance is rarely assembled in 60 days. SOX-lite internal control frameworks for accelerated filer status can take 12 months of implementation before they are defensible to a public company auditor (emerging growth company status provides more leeway).

For CFOs and controllers serving earlier-stage companies, this is the compounding value delivered when these workstreams are treated as strategic rather than administrative. A company that enters an M&A process or IPO readiness conversation with clean financials, documented policies, and credible governance can remove or lower the discount that buyers and bankers apply for execution risk.

We expect that the companies that will capture premium multiples in the next 18 to 36 months are building this infrastructure now.

The Window Is Opening

The patent cliff is already reshaping Big Pharma’s capital allocation. The M&A activity it has generated is signaling to institutional investors that biotech exits are worth watching.

Perhaps counter-intuitively, the 2025–2026 cycle is not going to reward the companies that move fastest when the window opens. It will reward the companies that were already ready.

In the next 90 days, we recommend considering the following:

Has your company’s prior approach to equity incentive compensation potentially created SEC cheap stock issues? Have you properly accounted for fair value considerations related to convertible note or SAFE issuances? Have prior business combinations or asset acquisitions been addressed and folded into the financials?

Review whether revenue recognition policies align with ASC 606 and 808, specifically for collaboration or license agreements where milestone and variable consideration treatment has not been formally documented.

Assess your current audit relationship against the S-1 timeline. If you are on a regional firm without public company audit experience, the conversation should start now and not at the next board meeting.

Schedule a formal discussion on dual-track optionality, not to make a decision, but because the board that has worked through both paths in advance executes with materially less friction when the process actually begins. 

1. Jonathan Gardner, “Big pharma’s looming threat: a patent cliff of ‘tectonic magnitude,’” Biopharma Dive, February 21, 2023.
2. Merck Q4/FY 2024 Earnings Release, Feb. 4, 2025; Rachel K. Anderson, “Soaring off the Patent Cliff: Preparing for the Next Wave of Oncology Biosimilars,” Pharmacy Times, December 17, 2025.
3. Patricia Van Arnum, “Bio/Pharma’s Top Mergers & Acquisitions Thus Far in 2024,” DCAT Value Chain Insights, August 1, 2024.
4. Ibid.
5. Ibid.
6. As of February 26, 2026.