Deal Activity Takeaways from JPM 2024
Every January, the J.P. Morgan Healthcare Conference (JPM) provides a valuable temperature check on the biotech and pharma industry’s mood.
As a transactional lawyer, my focus was on the outlook for deal activity. I would say that one's takeaways from JPM depend entirely on whether you are an optimist or a pessimist. I tend to be on the glass-half-empty side.
Below are my top deal activity takeaways from #JPM2024, based on conversations with company clients and bankers, and with inputs in some areas from my Mintz Life Sciences colleagues, Bill Hicks, John Rudy, and John Cheney.
Overall, with respect to both financing and M&A activity, my sense was most people felt we are in transition from desperate perhaps to only very needy. This transition is only a month or two old and based on a few large M&A deals announced within the past several weeks and a couple of IPOs. A trend? Maybe. Or perhaps just some strategically-timed announcements going into JPM.
IPOs. On IPOs, a couple of filings were announced and banks and law firms are teasing around many in the pipeline. The window often opens on the heels of a strong secondary market. And we have seen a number of small cap public companies raise money last year, particularly in Q4 as the sector stock indices ticked-up. But IPOs still usually require significant insider participation, and VCs have not seemed to be enthusiastic about doing that as evidenced by fewer crossover rounds happening in 2023. And, if you don’t have a strong institutional base, locking-in insider participation is near impossible. Some are predicting the crossover round to IPO construct will re-emerge. The bankers seemed to be saying that it is just too early to tell what the IPO market will be in 2024. They want to see the deals pricing and doing well in the aftermarket. All are mindful that the great IPO markets of 2020-21 were stoked by generalist investors and those investors have yet to jump back in to biotech and life sciences. So, the thought is there will be more IPOs in 2024 than in 2023, but it will take time for any window to open wide.
- M&A IS getting more traction. Big Pharma CEOs reinforcing their interest at JPM. Sense of competitiveness around them to do the most deals. Sell-side interest increasing also. Private biotechs frustrated and worn down by challenging financing situation now deciding to sell earlier than would be optimal—based on phase 1 data rather than making it to phase 2. Some dynamics on both sides that may make for a strong M&A year, though this may not necessarily mean wins for sellers, and buyers may be finding some bargains. Sell-side interest ramping-up in hot areas like diabetes/obesity and AI. As an aside, expect an uptick in licensing and collaboration deals, though Big Pharma lately is looking for greater assurance lately from biotechs around their financial staying power.
Reverse mergers getting a lot of attention. To remind you, this is a back-door way for promising private companies that may not be attractive IPO candidates for a variety of reasons to go public and, in theory, to be able to attract broader types of investors. Dynamics changing some such that needing new money via a PIPE may not be key as long as 1 year of cash available. But if you do need the cash, then you need to do a PIPE at the time of closing, and lately the money has not been there for some deals. So, some reverse merger deals have stalled. Positive news after closing is still key to these companies getting traction. To compound CHALLENGES for reverse mergers, the SEC is taking a closer look at these deals lately. As we saw not long ago, the SEC's scrutiny of SPAC transactions did not bode well for those deals.
VC private financing activity remains mixed. Seeing many deals with convertible debt where the investors are providing enough funding to keep the lights on and to move lead/advanced programs along, but not ramping-up and taking risk on earlier stage companies. Most deals are still tranched and still keyed to milestone achievement. Seeing more drug companies, as well as device/diagnostics companies, resorting to angel investors than had been the case previously and developing business plans where they can identify (and achieve) short-term value drivers based on closing more modest rounds.
Many spoke of macro issues still weighing on sector. Inflation, interest rates, wars, focus on drug pricing, presidential election, and so forth. In addition, in the life sciences sector in particular, concern with FTC heightened scrutiny of M&A transactions and drug price negotiation provisions in the Inflation Reduction Act are causing concern. Unclear whether end of 2023 momentum will continue.
Areas of focus certainly include AI. Uses beyond drug development and clinical trial management seem boundless. Tech companies are engaged and looking for partnerships and a few were announced at JPM. VCs are very focused here. Many were touting the slogan of “Big Drugs for Big Diseases,” suggesting that oncology, cardiology and neurology areas remain hot. Throw in obesity, especially approaches not keyed to GLP and focus on oral delivery, though many companies are now on that bandwagon. Gene and cell therapies much talked about in view of the recent success/approvals of drugs targeted at sickle cell disease.
- Conference felt very international. I had the sense that there were several events designed for Asian investors and strategics, particularly from China and Korea.
From the optimists, there seems to be a sense that institutional money needs to come off of the sidelines in 2024. The optimists are also seeing Big Pharma flush with cash and facing patent cliffs which, in theory, should drive M&A. That’s the view of optimists. The pessimists were chanting “Stay Alive Til ‘25”!!!!
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