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BIO CEO 2019: The Future Of IPOs And M&As In Biotech
April 10, 2019
5 min read
What does the investment landscape look like for biotech in 2019?
On Feb. 12, Craig Farrell, VP, AlphaSense, joined a group of leading biotech investors at BIO CEO & Investor Conference 2019 to discuss the shifting M&A landscape following a strong year of IPOs for the sector. Farrell was joined by leaders from H.C. Wainwright & Co., Bristol-Myers Squibb, Xontogeny, Sofinnova, and Aisling Capital.
Here were some of our biggest takeaways from the discussion:
An ‘inverse correlation’
According to a Renaissance Capital study, 58 biotech companies went public in 2018, raising nearly $6.3 billion in capital. But the overall IPO fallout within the biotech sector was mixed. Six out of the top ten performing IPOs of 2018 were from the healthcare sector. But when you look at the worst performing IPOs, healthcare dominated there too — eight out of the 10 worst performers hailed from the healthcare/biotech space.
Conversely, there were 111 reported M&A events in the biotechnology, pharma, and generics sector, according to Pharma Letter analysis. This number is slightly higher than the 101 reported in 2017, but still down when compared to 2015 (155) and 2016 (130).
The rise in IPOs, and lower M&A activity point to what was described by the panel as an “inverse correlation” that has emerged over the last several years. However, the tides may be changing as companies begin to look for more capital into 2019.
“It was agreed there was an inverse correlation between acquisitions and public offerings,” James Healy, Sofinnova Investments, said. “I think that one other dynamic will be the number of companies that went public in 2017 and 2018 — they need to come back to the markets and raise capital. So I think boards are going to be faced with a dilemma…either raising capital…or looking at or engaging in either partnering or acquisition discussions.”
The future of M&A in biotech
As far as acquisitions go, 2019 got off to a solid start. Celgene was acquired by Bristol-Myers Squibb for $74 billion. Lilly expanded their oncology portfolio with the $8 billion acquisition of Loxo Oncology.
When it comes to M&A deals moving into 2019, discussion moved to the possibility of changes in structure. Higher pre-IPO valuations, a more saturated biotech landscape, and the growing influence of macroeconomic factors pose new challenges for investors, biotechs, and corporate development teams when considering M&A options.
Companies with early-stage assets draw interest with the promise of innovation, but often lack the clinical data to support proof of concept, or have a prolonged path to commercialization ahead of them. Those investments are more risky for investors than later-stage companies, which may have some success behind them, shorter go-to-market run times, and the data to prove it . However, trends have shown it’s the early-stage companies that typically receive higher valuations, despite the risk involved. This trend, the panel discussed, could point to the persistence of a sector “bubble,” with the potential need for correction in the future.
Will M&A deals change in 2019?
To mitigate risk, some companies are considering diversifying the types of M&A deals offered.
“When we look at these potential target companies for M&As…I think most companies are continuing to pursue a strategy which is looking for the right assets, or pipelines, or platform to optimize pipeline,” Jin D’Elia, Bristol-Myers Squibb, said. “Going forward, we’re going to continue to look at what assets or opportunities can optimize our pipeline and enhance our capabilities.”
“Often times we try to create a creative deal structure,” D’Elia said. “It may not be a straight M&A, but it could be other deals, like a licensing deal, or a more risk sharing or allocated way to make a deal happen.”
“Having lived through the revolution of the expert network industry and seeing how it changed corporate and investor due diligence, it is exciting to see how our AlphaSense’s platform is leveraging AI to iterate how research is executed,” Farrell said.
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