Life Sciences Market Activities, Higher for Longer, and Our Latest Innovation Wave Podcasts

David H. Crean serving as the Managing Partner at Cardiff Advisory LLC, highlights several market trends that we are seeing in the public and private markets for life sciences companies hoping for a return to a better capital financing and exit environment. Dr. Crean also shares the latest recordings with guests from the Innovation Wave Podcast.

Persistent Macro Headwinds Still Impacting Life Sciences

Biopharma IPO and M&A activity returned in early 2024, driving cautious optimism for partnering, licensing, and venture investment activity. Biopharma deal activity started 2024 with a healthy spread of M&A and IPO completions. As venture investment for 2022 and 2023 were off the high-water mark set in 2021, the return to traditional exits bodes well for investments into the life sciences sector. Licensing deal comparables continued to shift a larger portion of deal value to milestones as in-licensing partners continue their trend toward risk mitigation. Chris Dokomajilar and his team DealForma provide a great overview of the life sciences market update for Q1 '24.

During Q1 of 2024, the global healthcare and life sciences sector saw 138 R&D partnerships accumulating $36.9 billion, including $2.3 billion in upfront cash and equity, a decline from the previous quarter, Q4 of 2023, where 166 deals raised $73.0 billion, with upfront cash and equity hitting $8.2 billion.

In Q1 of 2024, the biopharma, platform, medtech, and diagnostics saw 72 M&As, totaling $37.7 billion with contingents and $34.5 billion in cash. Again, a decrease from Q4 2023, where 78 M&As totalled $68.7 billion with contingents and $65.4 billion in cash.

In Q1 2024, venture funding in global healthcare and life sciences surged, with 306 rounds raising $12.4 billion. This was up from Q4 2023 when 277 rounds raised $8.7 billion. The two quarters saw 583 rounds and $21.0 billion in total funding.

Q1 of 2024 for global healthcare and life sciences saw 11 IPOs, generating $5.1 billion, a surge from Q4 of 2023, where only 3 IPOs raised $0.9 billion.

The $XBI index has rebounded from its lows in October 2023 and is up about 2% YTD, reflecting a slower-than-desired renewed investor interest in biotech stocks. This improvement since last October indicates a returning confidence in the investment sector, albeit cautious and choppy as noted in the YTD numbers driven largely by macro headwinds such as inflation and the cost of capital.

Finally, the population of public companies worth over $100mm or more grew nicely last week. There are still about 120 public companies (13.1%) that have more cash than their market cap (negative enterprise) and down from recent months. Biotechnology stocks bounced back last week after bottoming out recently. On an exit/addition adjusted basis biotechnology is up 24% for the year. While the recent downturn has taken its toll, there remains a robust rally that has unfolded in 2024.

Higher for Longer

Inflation remains stubborn despite slowing late last year after 15 months of aggressive rate hikes that the Fed halted in July. Recent data showed that core U.S. personal consumption expenditures (PCE) inflation rose 3.7% in the first quarter, after growing 2% in the fourth quarter of 2023. Strong economic data keeps undermining confidence that inflation in the US is on track for the 2% target.

The economy has continued to demonstrate strong momentum. But firmer-than-anticipated inflation in the first three months of 2024 has likely postponed rate cuts for the foreseeable future. As a result, officials are likely to emphasize that they are prepared to hold rates steady, at a level most of them expect will provide meaningful restraint to economic activity, for longer than they previously anticipated. The Fed continues to message that they need greater confidence that inflation would continue declining to 2% and state that it’s likely to take longer than expected to achieve that.

As financial-market participants anticipate fewer cuts this year, longer-dated bond yields will rise. In effect, this achieves the same kind of tightening in financial conditions that Fed officials sought when they raised interest rates in 2023. Higher yields across the Treasury yield curve should ultimately hit asset values, including stocks, and slow the economy’s momentum.

The nation’s employers pulled back on their hiring in April but still added a decent 175,000 jobs in a sign that persistently high interest rates may be starting to slow the robust U.S. job market. Last week's government report showed that April's hiring gain was down sharply from the blockbuster increase of 315,000 in March. And it was well below the 233,000 gain that economists had predicted for April. Yet the moderation in the pace of hiring, along with a slowdown last month in wage growth, will likely be welcomed by the Fed, which has kept interest rates at a two-decade high to fight persistently elevated inflation. Hourly wages rose a less-than-expected 0.2% from March and 3.9% from a year earlier, the smallest annual gain since June 2021.

Innovation Wave Podcasts: Dive In and Ride the Wave

Episode 16: Melanie Platt Provides Her Guidance to CEO Founders on Their Messaging and Goals to Raise Capital

In episode 16 of our podcast earlier in April, Bob McGriff and I spent time with Melanie Platt . As Founder of Pitch Hackerz , she has carved a niche for herself in the Venture Capital ecosystem, having assisted in raising $850M for a diverse portfolio of both VCs and founders. Her dual perspective of supporting VCs in attracting capital from Limited Partners, and aiding founders in their quest for funding, has positioned her as a strategic ally in the investment community. At the heart of Melanie’s mission lies her commitment to empowering those in search of investment. She equips them with the essential strategies and insights to ensure they are not just appealing, but genuinely compelling to their prospective investors.

Listen here to our journey with Mel and why some refer to her as CBO ("Chief Bucketing Officer") because she is very adept in breaking down complex, technical messaging into simple units so that "your grandmother understands it."

Episode 17: Ty Lam and the Use of AI-Predictive Analytics for Detecting and De-Risking Treatment of Diseases.

In episode 17 of our most recent podcast, Bob and I spent time with V. Tyrone Lam , COO of GATC Health . Ty delves into how AI-driven predictive analytics can transform our approach to disease treatment, making it more proactive and less risky. He shared compelling insights on the future of healthcare and how predictive tools can lead to earlier interventions and better patient outcomes. A must-listen for anyone interested in the cutting-edge of medical technology and AI!

As always, if there are topics you wish to have us address in future Episodes, or feel that you know of a key influencer who has value to add to our ecosystem and would be a great guest, please contact Bob McGriff or me and share your input. For more information, go to the Innovation Wave Podcast website. Dive in and ride the innovation wave. Be informed, be inspired, be innovative!

#Biotechnology #Lifesciences #venturecapital #Innovation #Mergersandacquisitions #Healthcare

Disclosures

Innovation Wave is a life sciences dedicated podcast produced by co-hosts Bob McGriff and David H. Crean. Relevant topics within the ecosystem related to the growth and exit of businesses are discussed in candor with entrepreneurs, key executives, influencers, and thought leaders in 15-20 minute episodes.

David H. Crean, Ph.D., is Managing Partner for Cardiff Advisory LLC, an M&A investment banking strategic advisory firm focused on the Life Sciences and Healthcare sectors. This article is provided for informational purposes only and does not constitute an offer, invitation, or recommendation to buy, sell, subscribe for or issue any securities.

The principals of Cardiff Advisory LLC are registered representatives of BA Securities, LLC Member FINRA SIPC, located at Four Tower Bridge, 200 Barr Harbor Drive, Suite 400 W. Conshohocken, PA 19428. Cardiff Advisory LLC and BA Securities, LLC are unaffiliated entities. All investment banking services and securities are offered through BA Securities, LLC, Member FINRA SIPC.