Resilience and Optimism in Biopharma Deal Activities for 2024

David H. Crean, Managing Partner at Cardiff Advisory LLC, highlights several market trends that he is seeing in the public and private markets for biopharmaceutical companies hoping for a return to a better capital financing and exit environment.

As we continue to navigate through 2024, the biopharma sector is demonstrating remarkable resilience and optimism. Despite global uncertainties, the industry is poised for robust activity and significant advancements.

Global Markets: A Strong Foundation

The global economy is proving to be stronger than anticipated. The market rally is expected to persist, buoyed by technological advancements, especially in AI, which promises massive, albeit uncertain, impacts. While higher interest rates may persist for a while longer, their effects on interest rate-sensitive sectors are expected to stabilize. Additionally, ongoing geopolitical conflicts and the upcoming U.S. election are factors to watch, as they will undoubtedly influence global markets.

Biopharma Sector: 1st Half of 2024

2024 is shaping up to be a constructive year for biopharma, characterized by a dynamic M&A market - the IPO market not so much. It is a year of "Haves and Have-Nots". Companies with strong catalysts continue to thrive in the PIPEs and follow-on markets, although the IPO market remains challenging with only nine IPOs to date. Key to this activity is the recalibration of valuations, which has made attractive assets, validated targets, and novel mechanisms of action (MOAs) more accessible.

1. M&A Activity: Following a robust 2023, M&A activities remain good and more is expected. Companies with strong assets (post-POC) and valuation metrics are driving this trend. Late-stage companies are the "Belles of the Ball". A large majority of investors and large strategic companies flock to de-risked, clinical-stage assets. The question for me is "how many late-stage quality companies remain?" When will the shift be towards early-stage?
2. PIPEs and Follow-Ons: The market for Private Investment in Public Equity (PIPEs) and follow-on offerings is active, particularly for companies with significant catalysts.
3. IPO Challenges: Despite the challenges in the IPO market, we have seen nine IPOs to date. Rapport is one example of successfully coming out to market. Others, not so much. More and more companies are in the queue and timing the market to go public.
4. Private Investment Equity Capital: Investors are transacting larger deal values but a lower number of deal volumes getting done versus last year. The market for private placements is thriving, with significant capital available. The first half of 2024 saw 23 private placements over $100 million.

Biopharma Sector: 2nd Half of 2024

In the latter half of 2024, I anticipate continued healthy M&A activity, driven by the quality of companies and assets available. Late-stage company deal-making is a priority, particularly in therapeutic areas such as neuro and oncology. Early-stage licensing is gaining traction as a lower-cost, lower-risk alternative to M&A, allowing companies to play the P&L and Balance Sheet game.

1. Macroeconomic Factors: Inflationary control and potential interest rate cuts will be influential. It looks like we may only see one rate cut by the Fed in 2024. A healthy M&A landscape will depend on company valuations, asset quality, and the ability to fill pipeline gaps.
2. Valuations and Quality: Attractive valuations and mechanisms of action (MOA) have recalibrated. Late-stage company M&A remains a priority across therapeutic areas.
3. Early-Stage Licensing: Licensing is prioritized for early-stage deals, offering a cost-effective strategy for companies not wanting to overpay. Key considerations include projected R&D costs and exploring new therapeutic areas. The impact of licensing deals on net present value (NPV) is a critical consideration for investors, as well as balancing strategic versus financial dilution. Collaboration and licensing are essential to fund early-stage discovery and R&D, averting an existential crisis for the sector.

Key Trends and Opportunities

Investors are increasingly drawn to assets with robust clinical-stage programs, particularly in inflammation, autoimmune diseases, immune oncology, cardiometabolic conditions, radiopharmaceuticals, neurology, and antibody-drug conjugates. Despite the challenges posed by the Inflation Reduction Act (IRA), small molecules continue to attract acquisition and licensing interest.

1. Equity Considerations: For some large pharma companies, equity might be part of the equation.
2. IPO and M&A Readiness: Companies with late-stage clinical, post-proof of concept (POC) and strong management are well-positioned for IPOs and M&A.
3. Dual Processes: The dual-track process of pursuing both M&A and IPO options is becoming more common.

The Importance of Management and Science

Building a successful company in the biopharma sector hinges on the quality of both management teams and scientific data. There is a noticeable scarcity of skilled management in my experience. For early-stage companies, a strong scientific foundation and compelling data are paramount from a pharma and venture investor perspective.

Conclusion

As we progress through 2024, the biopharma sector must maintain increased discipline and focus on cost containment while competing for top talent. Financing and deal-making processes are becoming more protracted, with diligence periods extending to six to nine months.

The biopharma sector's resilience and optimism are underpinned by strategic M&A, robust investment in clinical-stage programs, and the ongoing recalibration of valuations. As we navigate the complexities of 2024, the sector’s ability to adapt and innovate will be crucial in sustaining its growth trajectory.

Let’s embrace this year with a strategic mindset, ready to capitalize on the abundant opportunities and drive impactful advancements in biopharma. Feel free to share your thoughts and join the conversation on how we can collectively navigate and shape the future of biopharma in 2024!

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

Disclosures

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.