By acquiring Torch, a startup that unifies medical records for AI, OpenAI is moving beyond a general-purpose platform. This purchase provides crucial domain expertise and a solution for structured data, revealing a strategy to build specialized, industry-specific AI products for high-value sectors like healthcare.

The nature of biopharma M&A changed dramatically in a year. After a period with no deals over $5 billion, there are now seven or eight such transactions, reflecting a pivot by large pharma to acquire de-risked assets with large market potential to offset looming patent expirations.

Instead of selling software to traditional industries, a more defensible approach is to build vertically integrated companies. This involves acquiring or starting a business in a non-sexy industry (e.g., a law firm, hospital) and rebuilding its entire operational stack with AI at its core, something a pure software vendor cannot do.

Instead of viewing partnerships like Nvidia and Eli Lilly as a competitive threat, Recursion's CEO sees it as powerful validation for the AI drug discovery space. This activity shifts the industry conversation from skepticism ('Will this work?') to urgency ('Who will win?'), benefiting pioneering companies like Recursion by confirming their founding thesis and attracting more investment and attention to the field.

After years of focusing on de-risked late-stage products, the M&A market is showing a renewed appetite for risk. Recent large deals for early-stage and platform companies signal a return to an era where buyers gamble on foundational science.

Unlike previous technologies, ChatGPT’s launch created immediate, widespread pressure on biopharma executives. Prompted by their boards and even families, they recognized the potential to leapfrog years of development, rapidly elevating AI on the corporate agenda despite concerns about data privacy and IP.

Pharmaceutical advertising is the second leading source of health information for patients. AI can “de-criminalize” it by moving from untrackable broadcast ads to programmatic, personalized, and compliant digital content, turning it into a valuable and trusted patient resource monitored by the government.

Many pharma companies have breakthrough AI results in isolated functions, or "pockets of excellence." However, the ultimate competitive advantage will go to the company that first connects these disparate successes into a single, integrated, enterprise-wide AI capability, thereby creating compounded value across the organization.

With patent cliffs looming and mature assets acquired, large pharmaceutical companies are increasingly paying billion-dollar prices for early-stage and even preclinical companies. This marks a significant strategic shift in M&A towards accepting higher risk for earlier innovation.