Newsletter · · Ashutosh Agarwal

Biotech Buyouts Stall While Big Pharma Shops in China - The Biotech Patent Cliff & M&A - Week of October 2, 2026

The Biotech Patent Cliff & M&A for the week of October 2, 2026. Podcast synthesis on why big biotech takeovers have stalled even as Big Pharma signs three China licensing deals in one week, AstraZeneca takes a $2 billion stake in Summit Therapeutics instead of buying it, Sanofi and Regeneron extend the Dupixent franchise, and new drug tariffs take effect with an exemption process that is an email address and case-by-case decisions.

The Biotech Patent Cliff & M&A

Week of October 2, 2026: Biotech Buyouts Stall While Big Pharma Shops in China

Here's the odd thing about biotech right now. Everyone agrees Big Pharma needs to buy its way past the patent cliff, the run of blockbuster drugs losing patent protection later this decade. But the big takeovers have stopped. One STAT reporter said the whole sector is nervously waiting for "one... big deal" to get people excited again.

Big Pharma hasn't stopped spending, though. It changed how it spends. This week Novo Nordisk, Merck and Novartis each licensed a drug from a Chinese company. That's three China deals in one week, with roughly $1.3 billion paid upfront. AstraZeneca put $2 billion into Summit Therapeutics without buying it. Sanofi and Regeneron paid up to stretch the life of one of the world's best-selling drugs. Meanwhile, the drug tariffs took effect on September 29. Their guidance turned out to be an email address and a promise to decide "case-by-case."

TL;DR

  • The takeover pause is real, and the sector feels it. The XBI biotech index is still up 27% this year, but it's down about 9% from its late-August high and was flat in the third quarter. Panelists blamed hedge funds cutting positions, rising interest rates and the lack of a big takeover. Novartis's setback after its large Avidity buyout has reportedly cooled appetite for big bets on unproven drugs.
  • Pharma is licensing and taking stakes instead of buying. Three China licensing deals came in one week: Novo with Hengrui ($300M upfront), Merck with Cybrunch ($400M upfront for a preclinical drug, "one of the biggest ever") and Novartis with Abogen ($575M upfront). AstraZeneca bought 10% of Summit for $2 billion. Sanofi and Regeneron extended their partnership to protect the Dupixent franchise.
  • Tariffs are live, and the burden falls on smaller companies. BioCentury reports the guidance tells companies seeking an exemption to send an email and wait for case-by-case decisions with no clear appeal. A biotech CEO said price-cap deals with the government are now "coming for the mid-caps."

What's new

1) The takeover pause now has a name, and a stock everyone is watching

The clearest statement of the mood came on Biotech Hangout, "Episode 196 - September 18, 2026" (the September 18 session, which appeared this week). STAT's Adam Feuerstein (journalist) put it plainly:

"All it will take is one, you know, sort of big deal, M&A deal to kind of get people excited again. I think people are somewhat nervous about the M&A pause... I feel like Abivax kind of causes everybody to have major agita these days... a lot of attention is focused on whether or not Abivax is going to get acquired."

Abivax (ABVX) is a French company with a promising pill for ulcerative colitis, a kind of inflammatory bowel disease. It has become the industry's leading takeover candidate, so its daily swings now pull sentiment for the whole sector.

Why has the dealmaking slowed? Co-host Josh, on the same panel, offered an answer worth taking seriously. Novartis paid a lot for Avidity Biosciences, then hit setbacks with one of the drugs it acquired. Josh said that is "somewhat putting a chill in terms of appetite for large deals for assets that aren't fully de-risked." De-risked means a drug has already shown in late-stage trials that it works. He added a political worry. Drug launch prices keep climbing as the midterm elections approach, and "it just takes one tweet to roll the sector over."

Two weeks later the numbers showed the cooling. On Biotech Hangout, "Episode 198 - October 2, 2026," moderator Greg reviewed the third quarter:

"The XBI, which is an ETF, is up 27% for the year, which is meaningfully ahead of the XLV, which is a broader healthcare ETF, which is up just 7% year to date... Recall we hit a high in the XBI in late August at the $169 level, which means we are down about 9% or so since then."

Co-host Eric Schmidt summed up the quarter: "The XBI was essentially flat in Q3." For context, the same panel noted biotech has still beaten the S&P 500 (up 13% this year) and the Nasdaq (up 17%).

In the Episode 197 session (September 25), co-host Brian Skorney blamed the selling on "a big degrossing effect." Degrossing is when hedge funds that bet on some stocks rising and others falling shrink both sides at once. That forced selling hits smaller stocks hardest. He also pointed to interest rates: "I can't tell you how many conversations I've had over the last couple of months of like just how impervious the XBI has seemed... in the midst of escalating interest rates. And... now we've sort of crossed this threshold where... maybe people are taking it more seriously."

2) Big Pharma's new playbook: license it, invest in it, extend it. Just don't buy the whole company.

The pause in takeovers hasn't stopped the money. It has changed the deal structures. The Episode 198 panel walked through four deals, and each one shows a different way to buy time before a patent cliff.

China licensing, three times in one week. Sam Fazeli of Bloomberg Intelligence (an independent industry analyst) went through them:

"We have three China deals this week. Novo Hengrui, $300 million up front, $2.6 billion for HRS 1596. Phase 1 ready, GLP-1 GIP... Merck Cybrunch, $400 million up front, $2.13 billion, also a Chinese company... And then Novartis Abogen today, $575 million up front, $7.2 billion bio dollars."

"Bio dollars" is industry shorthand for headline deal values that count every possible future milestone payment. Those totals are rarely paid in full. The upfront cash is the real commitment, and here it adds up to about $1.3 billion across the three deals. Licensing a drug means paying for the rights to develop and sell it without buying the company that invented it.

Each deal fits its buyer's problem:

  • Novo Nordisk is licensing a pill-ready drug that combines two gut hormones (GLP-1 and GIP), the same approach as Eli Lilly's tirzepatide (Mounjaro/Zepbound). Fazeli noted Novo once had its own version, but "it kind of disappeared off the pipeline." Last week a UBS analyst called Novo a "value trap" that is losing obesity market share to Lilly. This is Novo trying to catch up.
  • Merck paid for an early drug aimed at KRAS, a mutation behind many pancreatic and lung cancers. On BioCentury This Week, "Ep. 389 - IgA nephropathy, Overton hearing, reverse mergers' new look," BioCentury's Paul Bonanos (journalist) said: "$400 million up front. The total deal value exceeds $2 billion. It's a lot for a preclinical program." Preclinical means the drug hasn't been tested in people yet. He added that he'd seen "one person saying it was the biggest ever for a preclinical asset." (The two podcasts describe the target mutation differently. BioCentury said G12C and Fazeli said G12D. Either way it's a KRAS drug, and Fazeli framed it as Merck eventually "taking on Revolution Medicines," whose KRAS drug was approved this year.) Merck needs new products before Keytruda, its roughly $31-billion-a-year cancer drug, loses U.S. patent protection in 2028, and it keeps shopping in China.
  • Novartis licensed an mRNA-based immune therapy. Fazeli was openly skeptical: "We can at one day debate why you need an mRNA to create an antibody as opposed to just give the antibody."

An equity stake instead of a takeover. AstraZeneca invested $2 billion in Summit Therapeutics (SMMT) at a premium to its share price and now owns about 10%. Summit's lead drug, ivonescimab, attacks two cancer targets at once (PD-1 and VEGF). It's the class that has challenged Keytruda in Chinese trials. Eric Schmidt pointed out the gap between what the stock market and a drug company were willing to pay:

"Just a few months ago, this company tried to raise about $500 million in the public markets. And, you know, they were looking at a lower equity valuation, and they kind of came up short. So, here's AZ giving them $2 billion at a premium and all this access to combination drugs and clinical expertise."

Schmidt said Summit told him AstraZeneca has seen no private trial data: "The public markets have seen everything." His conclusion: "there's a bit of a disconnect between what a strategic is willing to pay and what an investor is willing to pay." A "strategic" is a drug company buyer, as opposed to a financial investor.

Fazeli argued the other side. He recalled a rumored $15 billion takeover "about a year or so ago" that never happened, and said AstraZeneca "wanted to have some skin in the PD-1 VEGF game." He also noted that "Summit was running out of cash." The structure, he said, lets AstraZeneca "test out a few hypotheses without really committing much more than $2 billion." What stood out to him was who pays for the trials:

"We have a deals database that we create ourselves. I went back and looked at a whole bunch of these supply and collaboration deals. I couldn't find one... where the provider of the drug, say if it's a Merck with their Keytruda or whatever, is actually paying anything for the conduct of the R&D or the trials... Daiichi, Astra and Summit are investing in the trials. That is a novel thing that I've not seen very often."

Summit stock rose nearly 10% on the week. The big test is Summit's HARMONi-3 trial. Schmidt expects first results late this year or possibly early next year. Fazeli said investors told him everything from "any day now" to "delayed till next year."

Extending a blockbuster. The patent-cliff deal of the week was Sanofi and Regeneron renewing their 20-year partnership. Co-host Brian Skorney explained the problem. Dupixent, an eczema and asthma drug, is "one of the top selling drugs in the world," and both companies "faced that investor pressure the last couple of years to kind of outline a better Dupixent lifecycle strategy." The new deal covers four follow-on antibodies on the same biological pathway, including a longer-acting version that needs fewer injections and one nicknamed "SuperDupy." The terms: "It's a billion dollars up front to Regeneron. There's up to $7 billion in future milestone payments. And the companies will continue sharing P&L here on a 50-50 global basis."

Fazeli added the patent detail that matters most:

"The CFO on the call said that they believed that they would be pushing out generic competition a few years beyond the 2031 composition of matter data date. We published back in May the results of our patent group's analysis of the Dupixent patent, who think that it can be pushed to 2037, late 2037 from 2031."

A "composition of matter" patent covers the molecule itself and is usually the strongest protection a drug has. Pushing competition from 2031 to 2037 would mean six more years of exclusive sales for one of the industry's biggest drugs. That's the kind of patent-cliff defense investors want, the same kind Merck is trying to build for Keytruda. The market wasn't impressed. Sanofi stock fell. Fazeli passed along a buy-side friend's description of the deal: "an old married couple driving their car, taking the foot off the gas and coming to a stop in the middle of the road in silence." Some investors, he said, think "maybe Sanofi paid a bit too much."

3) The tariffs are live, and the exemption process is an email address

Last week's issue covered the run-up to the September 29 start of tariffs of up to 100% on imported patented drugs. On BioCentury This Week (Ep. 389, September 29), Washington editor Steve Usdin (journalist) described what the rules turned out to be:

"The guidance, such as it is, has been released. It leaves a lot of questions unaddressed. And it sets up a process where some things by default, some products by default, will be exempt from the tariffs, but many won't... the Trump administration has said to companies that believe that they're eligible... it gave them an email address and some questions that they're supposed to answer and said, you know, send an email to this address. But it didn't say what's going to happen next."

Decisions will be made "on a case-by-case basis by commerce and in consultation with other government agencies, including HHS." Usdin said that "doesn't suggest that the decisions will be made rapidly," and it isn't clear whether companies can appeal. His bottom line for the patent cliff: the process is "certainly going to increase the costs and complexity for small companies and mid-sized companies that are importing products," especially drugs made in China, Australia and Canada. Those small and mid-sized companies are exactly the ones Big Pharma buys to refill its pipeline.

The same episode covered the Senate hearing for FDA commissioner nominee Heidi Overton. Usdin said she described President Trump's instruction to her as "to go fast," citing competition with China. A faster FDA would make development-stage biotechs worth more to buyers. Usdin wouldn't be surprised if the confirmation vote slipped until after the midterms.

4) Price caps reach the mid-caps

The drug-pricing story is moving down from the giants to mid-sized companies. On Biotech Hangout Episode 197, Matt Klein, a biotech CEO and regular co-host (an insider), discussed Pfizer's "most favored nation" (MFN) agreement with the government. Parts of it became public through a records request. MFN deals commit a drugmaker to charge Americans no more than it charges other wealthy countries. Klein pointed to one provision:

"If prices in other jurisdictions go up, that Pfizer has agreed to some kind of effectively net revenue share where some of the benefit they get from that goes to the U.S. government."

He described the industry mood as "somewhere between agita and existential angst," but called the revenue-sharing idea "a good piece of it" because it pushes other countries to pay more instead of only cutting U.S. prices. Then he spoke about his own company:

"I think we don't have an MFN agreement with the government today. I suspect given what we're seeing around us that like it's sort of coming for the mid-caps and it may be a conversation we have to have at some point. And I think we'd be open to them from what I've seen other people sign. They seem like they're constructive."

That matters for the tariff story. The 13 companies with MFN and U.S.-manufacturing deals are exempt from tariffs. If mid-caps start signing too, the gap between protected and exposed companies narrows. Fazeli raised a longer-term worry. China's "endless PD-1s... including biosimilars of Keytruda, but ones that are branded," such as Henlius's serplulimab and toripalimab, could follow the path of Chinese electric cars in Europe and open "the door for cheaper, not lower quality, but cheaper Chinese drugs that do the same thing."

An operator view came from Boehringer Ingelheim. On Citeline Podcasts, "Strategic Intent: Boehringer Ingelheim's Brian Hilberdink on Launching Into the GLP-1 Era," Hilberdink, president of Boehringer's U.S. human pharma business, said his company was "one of the, you know, 17 companies that were approached by the administration for that initial MFN deal." He also said Boehringer is "the only company that's had three products negotiated through the IRA maximum fair price CMS mechanism." That's the Medicare price negotiation created by the Inflation Reduction Act. His message on the U.S. market: "it is business as usual."

Hilberdink also gave the week's clearest example of handling a patent cliff well. Boehringer's lung-disease drug Ofev lost exclusivity "as of April of this past year," and the company launched its successor, Jascayd, ahead of that. He called it "just perfect lifecycle management." He took a swipe at public-company peers:

"I think some companies are dealing with these constant patent cliffs and it's kind of like, let's go quick. Let's get something in the marketplace to try to plug a hole."

His explanation is that Boehringer is privately owned, reinvests "27.5% of revenues" in R&D and doesn't live "quarter to quarter." Treat that as an operator promoting his own company. Still, it's a fair description of how publicly traded pharma companies behave near a cliff.

A more opinionated view on pricing came from the Vital Health Podcast, "VT Discusses MFN and Price Controls." Duane Schulthess, CEO of the consultancy Vital Transformation (a pundit, and openly against price controls), cited a White House Council of Economic Advisers report "released on May 6th of 2026" saying "any new drug is going to be priced at the MFN price." On the IRA's Medicare negotiation he said: "IRA is terrible... we've seen a 27% drop in lead indications." That figure comes from his firm's own preprint study.

5) The China numbers keep getting bigger

The scale behind those three licensing deals came up on the Sinica Podcast, "From Barefoot Doctors to Biologics: Dr. Ruby Wang on China's Healthcare Revolution." Host Kaiser Kuo (journalist) set it out:

"Last year, Chinese companies signed something like 186 out-licensing deals with a disclosed value of around $137 billion. That is roughly half of all out-licensing value globally and close to 10 times what it was in 2021."

His guest, Dr. Ruby Wang, an NHS physician who now runs a China health strategy consultancy (an analyst), added a sharper number. Chinese companies' share of out-licensing deals worth over $50 million went "from 5% to 50% in the first half of 2026." She said China is strongest in cancer, especially antibody-drug conjugates and cell therapies, and is fast-following in obesity. She noted Lilly has signed "massive multi-billion dollar deals with Chinese companies" for next-generation GLP-1s. Her argument for why the quality question is settled: drug companies "aren't really in the business of, you know, making bets that don't work."

There's one caveat on the scale. Kuo noted China still had only "about 4.8% of the global biotech market" in 2024, against roughly 35% for the U.S. China is now a major source of new drug candidates, but the profits still mostly flow to the Western companies that license them.

From the investor side, Canaan's Julie Grant said on The BioCentury Show, "Ep. 120 - Canaan's Julie Grant on building biotechs in white spaces": "we think there's great assets, talent, knowledge in China." She said all of Canaan's companies "now are looking for assets to in-license as well as assets to discover in house." BioCentury's Bonanos added that Asia-sourced startups are increasingly going public through reverse mergers, because "there has already been clinical work done in Asia."

The debate

This week both sides were argued, though neither strongly.

The case that the buying will resume. It came mostly from investors with something to sell, so weigh it with that in mind. On the Becker Private Equity & Business Podcast, "Biotech Growth, Capital and M&A with Dr. Howard Berman of ReAlta Life Sciences 10-1-26," ReAlta's Howard Berman (a biotech CEO, so an insider talking his book) said M&A has been "increasing dramatically" this year and "I don't think that's going to slow down... with the amount of cash that pharma has, they need to use it and spend it." He expects buyers for rare-disease drugs to come from "either big pharma or mid-tier pharma."

Canaan's Julie Grant explained why takeovers drive biotech valuations. Public investors are "looking for the premium, the 60 to 70 percent increase in the trading stock price that can come from M&A. And if a stock is seen as one that isn't on roadmap for any buyers, often the stock will trade down." Private takeovers can pay "10 to 20 X" the last funding round. She gave the example of DayOne, which she co-founded and Servier bought for $2.5 billion in upfront cash this year.

Her most useful point for patent-cliff watchers was about which buyers matter:

"It'll be really hard to sell a smaller market product into AbbVie, Pfizer, J&J, Merck, Lilly. It won't move their top line EPS, and that's their business. And instead of getting angry about it, I think it's important to focus on the next tier of pharma... Ipsen and Jazz and Servier."

In plain terms, the patent cliff pushes the biggest drugmakers toward large-population drugs, because only those can replace a $20-30 billion franchise. Smaller-market drugs need a second tier of buyers, and Grant sees that tier as healthy. She cited Jazz's deal for Actio, which has an epilepsy pill, as an example.

The case for caution. Josh's point on the Biotech Hangout panel was that the Novartis-Avidity setback has made buyers wary of paying big prices for drugs that haven't proven themselves in late-stage trials. Schmidt's Summit observation supports it: drug companies would rather take a 10% stake and fund trials than pay a full takeover premium before the data arrive. Add tariffs, MFN pressure moving down to mid-caps, and Klein's "one tweet" political risk, and the caution looks rational, not just nervous.

The names in play

  • Abivax (ABVX): the stock the sector is watching for a takeover. STAT's Feuerstein said it "causes everybody to have major agita."
  • Summit Therapeutics (SMMT): $2 billion from AstraZeneca at a premium for about 10%, after failing to raise $500 million publicly a few months ago. HARMONi-3 results are the next big event, possibly slipping to early 2027.
  • Sanofi (SNY) / Regeneron (REGN): $1 billion upfront plus up to $7 billion in milestones to extend the Dupixent franchise. Bloomberg Intelligence thinks Dupixent's exclusivity can run to late 2037, not 2031. Sanofi shares fell on worries it overpaid.
  • Merck (MRK): paid $400 million upfront for a preclinical Chinese KRAS drug, possibly the most ever for a drug not yet tested in people. It's the latest China-sourced piece of its plan for life after Keytruda.
  • Novo Nordisk (NVO): licensed Hengrui's GLP-1/GIP drug for $300 million upfront. That fills a gap against Lilly's tirzepatide and follows last week's "value trap" call from UBS.
  • Novartis (NVS): $575 million upfront to Abogen, while its Avidity setback hangs over the market.

Read-throughs

  • Bankers and services providers: bullish, with a warning about the middle market. On House Calls, "Quick Hits: Pharma Services M&A - Market Access and Potential Business Model Impact From AI Take Center Stage," Cain Brothers managing director Jason Moran (an investment banker, so an insider with a stake in deals) said the headline numbers hide a "barbell phenomenon." There are huge deals like "Thermo Fisher's $8.9 billion purchase of Clario" and small ones, "but what we're missing really are those transactions in the middle." He said that's starting to change, with "one midsize deal that has been signed and several other midsize deals that are currently in market." His link to biotech: biotech fundraising "provides the rocket fuel... for pharma services spending," and "the capital raise within the biotechnology sector has been very robust... More robust than it's been since '21. And so the coffers are now full again." His bottom line: "We're actually pretty bullish on M&A for pharma services over the next 6, 12, 18 months." He flagged "market access," the companies that help drugmakers set prices and win insurer coverage, as "about a $5 billion market growing at about 10%," with "about 15 or so" private-equity platforms hunting for deals.
  • Small and mid-cap biotech: money is getting in, but not through takeovers. BioCentury's Bonanos said reverse mergers, where a private biotech goes public by merging into an existing listed shell company, now come "almost as many as IPOs in 2026." They're usually paired with funding rounds "in the nine-figure range," up from a low of seven last year. Wedbush has led "about 10" of them. On Biotech Hangout, Fazeli said average IPO proceeds are the highest he has seen since at least 2019, and co-host Eric Schmidt noted a large IPO (Oura) that tried to raise "over $2 billion" was pulled this week. Schmidt said a banker on the deal sees little read-through to biotech. The worry is the gap between companies owned by specialist biotech funds and those that aren't.

What changed

The takeover drought became the story. Last week the podcasts said buyouts had "taken a little bit of a breather" and pointed to AbbVie's $10.9 billion Apogee deal as a sign of life. This week the panels called it the "M&A pause," named the stock everyone is watching (Abivax), and gave a reason: Novartis's Avidity setback. The XBI has given back about 9% from its August high.

Tariffs went from unknown to unclear. Last week nobody knew the rules. Now the rules exist, but the exemption process is an email inbox with case-by-case decisions and no clear appeal. The burden on small and mid-sized importers that BIO warned about last week is now official.

Novo answered its critics. A week after UBS's Michael Yee called Novo a "value trap" losing ground to Lilly, Novo licensed a Chinese drug of the same type as Lilly's tirzepatide. Small, early and cheap at $300 million upfront, but it's a direct response.

China moved from talk to deals. Last week came the reports from Shanghai about a "gold rush." This week brought three signed licensing deals with about $1.3 billion paid upfront in a single week.