The life sciences industry is poised for better times in 2026, according to speakers at the McDermott Forum, held on January 13, 2026, during the 44th annual J.P. Morgan Healthcare Conference. Hosted by McDermott Will & Schulte with knowledge partner Ernst & Young (EY) at the Ritz-Carlton San Francisco, the event featured insights from senior life sciences, investment, and policy leaders on a broad range of subjects, including merger and acquisition activity, trade policy, drug pricing, investment trends, and global health. Speakers pointed to renewed engagement from strategic buyers, private equity sponsors, and public market investors alike.

Here, McDermott and EY share key takeaways from the event.

Adapting to government changes

Regulatory oversight

The second Trump administration has taken a strong interest in oversight of the life sciences sector, with a particular focus on affordability and on-shoring and the industry has had to adapt quickly to many regulatory changes that have, at times, created market opportunities. After the first year of Trump’s second term, the industry has a clearer sense of what to expect and the overall cadence—its own form of normalization—though predictability remains limited. Respondents to a live poll at the forum said that the biggest source of uncertainty in life sciences today is political volatility and election dynamics (40%), followed by drug pricing and Medicare/Medicaid reforms (25%), and US Food and Drug Administration unpredictability (16%).

Scrutiny of drug pricing

The administration continues to pursue initiatives to lower drug prices, including a new most-favored nation (MFN) plan and a direct-to-consumer sales model. Pharmaceutical companies are responding by striking MFN deals with the federal government and can now move forward with a higher degree of confidence, having found some resolution to a major market change. Cutting out the middlemen could create new opportunities to access patients and increase sales volume.

Fate of executive orders

While the regulatory environment is improving in 2026, panelists noted that there is still uncertainty about the future. It’s unclear how many executive orders, such as those mandating MFN pricing with direct-to-consumer sales and providing incentives for reshoring domestic pharmaceuticals manufacturing to the US, will survive past the current administration. So making longer-term investment decisions around that dynamic may be challenging.

“We’re meeting at a moment when regulatory change is shaping nearly every corner of the life sciences sector, from how companies plan their pipelines to how investors calibrate risk.” – Paul Gadiock, McDermott Will & Schulte partner

Improved financial outlook

Private capital

Private capital, including private equity, venture capital, and crossover investors, continues to play a huge role in life sciences and healthcare broadly. Activity increased in the second half of 2025 and into early 2026. In the first week of January, more than $2 billion of private capital investment was announced in biopharma and MedTech. Most participants at the McDermott Forum (79%) predicted that life sciences investment activity will improve in 2026.

IPO rebound

Based on encouraging momentum in January, the initial public offering (IPO) market looks set to rebound from last year’s low, and ongoing interest rate cuts will further improve the outlook. The launch of several big-name IPOs outside the healthcare sector could initially divert investment away from other sectors but, if successful, could have a positive spillover effect for biotech.

Urgent need for mergers and acquisitions (M&A)

Given that patents for several blockbuster drugs are expiring and will lead to some $300 billion in revenue losses between 2028 and 2032, panelists foresee a strong demand for M&A. In a live forum poll, 40% of participants said that deal activity is picking up, but with smaller asset acquisitions rather than mega deals, and 40% said the “money is there but confidence isn’t fully back.” Buyers likely will be interested in a diverse array of therapeutic areas, but assets must be differentiated and relatively advanced clinically, panelists said.

AI’s growing impact in healthcare

More trial successes

Artificial intelligence (AI) is starting to make its mark on the industry, particularly in improving success rates of clinical trials. According to Pitchbook’s latest analysis, AI can help boost success rates from 52% to 80% in Phase I to II, and from 29% to 40% from Phase II to III, reducing costs in the process. As a result, expect more AI-powered drug discovery partnership deals.

Mass AI adoption

Healthcare’s adoption of technology is often slowed by regulatory constraints, but some applications, such as the use of scribes during patient visits, are proving very popular. Consumers have embraced AI, with an estimated 40 million asking health questions of ChatGPT every day. AI-enabled companies secured 54% of venture capital funding for digital health startups in 2025, up from 37% in 2024.

Winning in AI

The challenge for industry is how to develop AI tools with meaningful return on investment, not just hype experiments.

Bending the cost curve

Cost increases

Employers expect a 10% increase in costs to provide insurance coverage for their employees in 2026, which the panelists said is unsustainable. Investors are increasingly looking for solutions that give outcomes that can reduce costs in the healthcare system, while also improving the experience of plan members.

Consumer power

Consumers continue to become more empowered in a number of different ways. They are gaining personalized information through wearables and have more opportunities to obtain drugs without a doctor’s prescription or even insurance. Also, AI could make it easier to evaluate various services and their costs in a way that wasn’t possible 10 years ago. In short, shopping around for healthcare is getting easier.

The way forward

Despite the many supply-side pressures of recent years, including changes in trade policy, tariffs, and immigration, the global economy has proven resilient, with only a slight cooling in activity. The twin trends of low birthrates and an aging population will increase pressure to improve productivity through AI. EY-Parthenon Chief Economist Greg Daco noted: “If we are able to drive stronger productivity growth, we might be able to offset part of the demographic drag that is likely to be with us, not for just the next year, but for the next 50 years.”