While merger and acquisition activity has been robust of late, frequent changes in guidance and leadership at the regulator add risk to any transaction.
After a cautious start in 2025, life sciences transactions, particularly M&A, finished out the year on a strong note and momentum has carried into 2026, with the first quarter showing approximately $47 billion in acquisitions across 19 deals in biopharma.
As partners at Hogan Lovells with experience advising on complex transactions in the industry, we’ve observed that while deal activity has been robust, regulatory uncertainty at the FDA has affected acquisition strategy and deal structure. Over the last eighteen months, the agency has faced renewed perceptions of instability driven by leadership turnover, heightened political scrutiny and shifts in regulatory priorities. Changes in senior agency leadership and increased executive branch involvement have raised questions about consistency in regulatory decision‑making and enforcement. At the same time, evolving policy signals—particularly around drug pricing, accelerated approvals and regulatory reform—have contributed to uncertainty for life sciences companies planning development and transaction timelines.
Specifically, leadership changes at the Center for Biologics Evaluation and Research (CBER), which regulates biologics, gene therapies and vaccines, combined with changing guidance priorities and evolving scientific frameworks call into question whether certain therapies can be approved, impacting deal timing and valuations. In several areas, earlier signals around acceptable endpoints, manufacturing comparability, long‑term follow‑up requirements or evidentiary thresholds have been revisited or reframed, leaving the market unsure whether legacy guidance can still be relied upon. Draft guidance has at times replaced previously informal but well‑understood expectations, without clear transition rules for programs already in development. All of these factors make valuing both early and clinical stage assets a challenge, adding additional risk to any transaction.
Mitigation strategies
Regulatory uncertainty has not halted transactions; rather, buyers and sellers are sharing regulatory risk more than ever to get deals done. Buyers’ mitigation and risk sharing strategies include pre-acquisition relationships through licensing and collaboration arrangements, use of milestone-based payments and contingent value rights (CVRs) tied to FDA outcomes and an emphasis on acquiring late-stage assets.
An increasingly important trend is the use of licensing and collaboration deals as a precursor to full acquisition. In 2025, approximately 30% of M&A targets had a pre-existing licensing or collaboration relationship with the acquirer. These relationships can also include an investment in an early-stage company coupled with a research arrangement and an option to acquire the target if the results of the research are successful. These types of arrangements mitigate diligence risk by allowing prospective acquirers to have visibility into the regulatory path and a more intimate knowledge of a collaborator’s science and commercial viability before investing time and money in an acquisition.
Other mitigation strategies include the use of contingent consideration, such as CVRs, earnouts and milestone-based payments. These structures are common and tie portions of the purchase price to clinical, regulatory or commercial achievements. In 2025, approximately two-thirds of biotech acquisitions included some form of contingent consideration, representing over one-third of deal value. While these mechanisms help bridge valuation gaps, they also introduce legal complexity.
Exceptions to the trend
While we have been seeing the trends described above used to address regulatory uncertainty, buyers in competitive transaction environments often lack the leverage to employ these risk mitigation tools. In 2025, we saw a number of auctions and even a handful of attempted interlopers pushing high valuations for sought-out targets. This competition in the marketplace is evidenced by a shift toward higher upfront payments. In 2025, the upfront consideration as percentage of overall deal value rose to between 60% and 75% and in 2026, several transactions had 80% or more in upfront consideration.
We haven’t seen many mega-deals in 2026, but it does seem that acquirors have become comfortable with the uncertainty coming out of the FDA given that they are continuing with smaller acquisitions to support their strategic initiatives. We expect that these buyers will continue to build relationships with future targets through licensing and collaboration arrangements, seek to acquire late-stage assets and make use of creative deal structures and contingent consideration to bridge valuations and mitigate risk.
