Healthcare's Next Growth Drivers: M&A, Innovation and AI

As healthcare leaders and investors gathered at the 2026 Morgan Stanley Global Healthcare Conference, conversations centered on an industry balancing innovation, growth and disruption. Morgan Stanley bankers highlighted a stronger financing environment in biotech, robust demand for differentiated therapies and technologies and the growing importance of data and AI across healthcare. Executives also discussed advances in oncology and obesity, the outlook for healthcare M&A and the growing role of Chinese biotech in the global innovation ecosystem.

Underlying many of the panel discussions was a rapidly evolving industry backdrop. Executives weighed the implications of the upcoming U.S. midterm elections, including the future of PBM reform, which could reshape the role of prescription-drug intermediaries, and 340B reform, which could affect drug pricing and provider reimbursement. Many discussions also focused on China's growing role in drug discovery, both as a source of innovation and an increasingly important partner, while raising questions about how companies can maintain a competitive edge and accelerate the path from scientific discovery to patient care.

The following themes stood out for company leaders and investors:

• Healthcare M&A's continued momentum, driven largely by strategic acquirers seeking innovation and scale.
• Investing for the next wave of growth, from oncology and obesity to cell therapy and next-generation diagnostics.
• AI's growing influence across healthcare, from drug discovery and clinical development to commercialization, patient care and capital allocation decisions.

Healthcare M&A's Continued Momentum

At a panel featuring Morgan Stanley healthcare M&A bankers, discussion centered on the durability of the current deal environment and what is driving activity across the sector. Despite a more challenging backdrop in some areas of healthcare, panelists remained constructive on the outlook. Global healthcare M&A volumes have reached approximately $4.7 trillion, well above the 10-year average of $3.2 trillion, while transactions valued at more than $10 billion are up 55% year to date. Strategic acquirers, rather than financial sponsors, continue to drive much of the momentum, with biopharma accounting for roughly 70% of healthcare deal activity.

Biopharma remains at the center of dealmaking. Panelists pointed to a wave of patent expirations expected later this decade. Panelists noted that many pharmaceutical companies face significant revenue headwinds in the years ahead, creating a need for both internal innovation and external growth. As a result, buyers continue to pursue assets that can strengthen pipelines and expand into attractive therapeutic areas, with both large pharmaceutical companies and increasingly active mid-cap biopharma companies participating in the market.

At the same time, competition for high-quality assets is intensifying. Improved capital markets have given biotech companies more flexibility to remain independent and fund themselves through future milestones, increasing their leverage in negotiations. At the same time, a broader buyer universe is creating more competitive processes. The bankers noted that strategic fit has become increasingly important as buyers move more quickly to secure differentiated assets before they become unavailable.

In addition, healthcare services could be the next area to reaccelerate. While healthcare services M&A has lagged biopharma amid regulatory pressures, payer challenges and balance-sheet constraints, activity could improve over the next 12 to 18 months. Future transactions are likely to focus on vertical capabilities, pharmacy-related opportunities, sites of care and other assets that strengthen healthcare delivery. Meanwhile, AI is beginning to influence how buyers evaluate opportunities, with growing attention on competitive moats, proprietary data assets and business models that can benefit from advances in automation and productivity.

Biopharma's Next Innovation Frontier

As the M&A panel focused on the search for growth, pharmaceutical executives discussed where they expect growth to come from. Across therapeutic areas, conversations centered on new approaches to cancer treatment, the continued evolution of obesity medicines and advances in diagnostics.

Oncology was a focal point of discussion. Executives highlighted growing enthusiasm around T-cell priming approaches, including their potential application beyond melanoma and into additional tumor types such as lung, bladder and renal cancers. Discussions also explored efforts to better understand the biological factors associated with patient outcomes, including whether specific T-cell characteristics may ultimately help predict relapse or survival. Beyond therapeutics, executives suggested liquid biopsies could be nearing an inflection point as adoption expands and reimbursement pathways mature, potentially creating new opportunities in early detection and disease monitoring.

Obesity also remained a major area of investment and opportunity. Despite growing awareness of obesity medicines, executives noted that utilization remains in the single digits among patients who may benefit from treatment. Discussions focused on the potential for broader adoption as employers and payers increasingly recognize the health and economic benefits of obesity management. Companies also highlighted innovation beyond today's leading therapies, including oral treatments and longer-duration formulations designed to improve convenience, adherence and patient experience.

How Healthcare Companies Are Putting AI to Work

When executives were asked to identify underappreciated uses for AI, the discussion extended well beyond drug discovery. Across pharmaceutical, healthcare services and technology companies, leaders described how AI is already helping accelerate research, streamline regulatory processes, improve commercial effectiveness and enhance patient engagement. The common theme was that many of the technology's most immediate benefits are coming from productivity gains and workflow improvements rather than headline-grabbing scientific breakthroughs.

In biopharma, AI is beginning to accelerate innovation and reduce development timelines. Executives described using AI to improve molecular design, optimize drug candidates and increase productivity across research programs. Several companies pointed to tangible benefits already being incorporated into operating plans and budgets. Others highlighted significant improvements in regulatory workflows, with AI helping automate data preparation and submission processes and reducing the time between clinical results and regulatory filings from months to weeks.

AI is also reshaping how companies engage with physicians and patients. One pharmaceutical executive noted that physicians are increasingly turning to large language models for information, prompting companies to rethink how scientific content is surfaced and discovered. Others pointed to opportunities for AI to enhance specialized expertise across commercial organizations. On the provider side, healthcare systems are deploying AI in areas such as post-discharge patient follow-up, helping improve patient engagement while reducing administrative burden.