SAN FRANCISCO—What can you expect from M&A, IPOs and venture capital raises in 2019? We spoke to a plethora of biotech and medtech execs at the J.P. Morgan Healthcare Conference this week to find out.
At the start of the conference, we saw two major multibillion-dollar deals from Bristol-Myers Squibb and Eli Lilly for Celgene and Loxo Oncology, respectively, kick-starting what many will hope will be a strong year for biopharma M&A after some pretty lackluster years of bolt-on deals and biobucks-heavy research pacts.
But M&A is just one part of the picture: Initial public offerings and venture capital fundraising are just as important for smaller biotechs, and are sometimes preferred to being consumed by a Big Pharma and then nervously looking on while the board sharpens its ax.
During JPM this year, we saw that the IPO window appears very much open. There were three biotech IPO attempts: from Alector, which wants $150 million; Poseida, which wants a still meaty $115 million; and Anchiano Therapeutics, which has filed for a $35 million IPO.
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These come on the back of Moderna’s hair-raising and record-setting $600 million IPO, though analysts started to question whether this was the zenith of the biotech IPO comeback—which has been on the up since a miserable 2016—and if the tolerance of the market had been pushed just too far.
We’ve also seen some major VC rounds for early-stage biotechs, with $50 million- and $100 million-plus becoming commonplace in series B and even A rounds.
But what do those on the ground think? Our editorial team at FierceBiotech spent three days in San Francisco finding out.
Andre Choulika, CEO of French CAR-T biotech Cellectis (which got off an impressive $228 million IPO in 2015), says: “I can tell the IPO window is open today because I see that Poseida has just filed for an IPO $115 million now. And I think the IPO market in the U.S. will remain open because there is a need for finance. There is also money staying there that needs to be invested so I don’t think this is going to stop for now. I’m an optimist.”
On M&A, he was very bold: “I think the M&A space is going to explode in 2019,” he tells us. “There were no M&As last year, almost. I was surprised by the way because with the tax reform. etc., I thought the market of M&A would explode.
“There is a need for a lot of companies to acquire new products, especially pharma companies, so I think this is going to be a really powerful space, especially when you kick off the space with BMS buying Celgene. It’s very challenging for other pharma companies to stay in the race with something like this, so they will have to fight it out. There have been several companies in the oncology space that haven’t been moving at all that have been historically very present and [we will] probably see them move.”
Oz Azam, Tmunity CEO and former Novartis exec, says: “I think with 2020 looming around the corner, it’s going to be interesting, I think macroeconomic factors are going to be having a big deciding factor [in the IPO space].”
He explains there will always be a market, but for “good companies.” He adds: “If you’re good, you’re differentiated, and if you’re doing something that is really additive and beneficial, I think there’s a market. I’m feeling pretty bullish on this side of the fence right now that walking into 2019, this is a great year to grow companies and raise capital. Investors have seen the promise of our therapies now coming into reality and I think it’s going to be a great year to create value.”
Azam was also excited by the M&A activity at JPM this year and sees it likely to continue, with bigger companies needing to fill out their pipelines.
But he says that, like many other companies and CEOs, “I don’t want us to be acquired, I want us to deliver.
“But as officers of companies, you also have a fiduciary responsibility and I think we should also be humble that if it’s the right kind of M&A where patients are going to get the therapies out there, then that’s a good thing at the end of the day. So really depends on who that partner is and whether they are committed to deliver your therapies in the way you envision to patients as fast as possible. Some companies will do that. Others may not.”
Barry Greene, RNA biotech Alnylam Pharmaceuticals president, said: “It’s a highly capital-intensive business, it’s pretty hard to do without the public markets. So, I believe that black and white, if investors can make money, the IPO market’s going to stay because we certainly need it to be there.
“I’ve said this for almost 30 years: for biotech to be successful, four things have to be in place:
- There needs to be the ability to fund the company, capital needs to be there;
- there needs to be a transparent regulatory environment;
- you have to be able to get paid for your medicines if you create them;
- pharma has to be starved for innovation and really want innovative companies, either as deals or acquisitions.
“All four of those have to be in place for biotech to be ultimately successful. And it’s great we’re in an environment where capital is flowing, where the regulatory agencies are mostly transparent, if they reopen. That if you do it right, you’re getting paid for your medicines and bigger companies are buying and partnering with smaller companies. Those four things are really important for biotech success and it feels like it’s back for '19.”
Things are looking pretty positive for biotech, but what about the medtech industry, which has not been as bullish, at least in IPO terms?
Reggie Groves, CEO of medtech company REVA Medical, says: “If you separate biopharma from medtech, it's a little different profile. Everyone was chasing the biopharma and biotech stuff. Medtech didn't have as much of a big year, in terms of venture capital or acquisitions. There was some, but not as much on the IPO front, for example.”
But she sees things in biotech being a little less rosy: “When you talk about 2019, I have a general belief that money tends to flow much too fast in the same direction, and then it hits a wall. And the valuations have been pretty high there. And with the market as rocky as it is right now, my own prediction on the biotech side is that we might see a slowdown.”
On the medtech side, she adds that it “will keep on with at least the pace that it had in 2018, and the strategics are certainly going to keep doing acquisitions—that is just going to happen—the question is: When will the investors come back to fund the startups, so that there's something to be acquired? I think it's going to be an interesting year that's, at the moment, not predictable.”
DNA sequencer Guardant Health was an outlier for medtech IPOs, getting off a major $237.5 million offering back in October. Its senior vice president of biopharma business development, Daniel Simon, says: “It's been incredibly exciting. It's been like this huge caffeine shot to the company. But there's a huge amount of work to do still.”
On whether IPO activity and appetite will continue through 2019, Simon says: “I hope so. We've clearly entered this period of market uncertainty, but it certainly hasn't deterred anything. There's a lot of interest in this space still. I hope that would continue.”
On M&A, he adds: “I always think of these companies kind of as mushrooms. When one gets plucked, then you have all of these spores released, from all of these incredibly skilled people. A lot of them stay with the company, but some of them jump ship or are let go, and go off and propagate a whole bunch of new companies. There's a lot of newly available talent. The prospect of finding the best possible becomes harder and harder.”
When we asked Ken Londoner, CEO of diagnostic company BioSig, whether he thinks the high-end VC activity will continue, he was clear: “No, I actually don't. I ran mutual funds, then I ran a fairly substantial hedge fund with a VC fund married up with it, back in the late 1990s and early 2000s. We were investing in technology.
“When the market crashed in 2000, and even before it crashed, there was a pullback on VC. I've started to see a life science pullback in VC, starting at this conference two years ago. I was approached by certain people I know in the VC community, wondering if I could provide some of their companies counsel as to how they might want to think about the public markets, because I'm a public market guy.
“When we saw the crash in the Nasdaq and the crash in the Russell 2000—'crash' may be too harsh a word, but the strong pullback, the bear market, or whatever you want to call it—in the third and fourth quarter of this past year, it could have been a growth scare, but I think it's the beginning of a change in direction for this cycle.
“The market's been up for 10 years; it's the longest economic cycle in modern history … It's the same thing that happened at the peak in 2000. Money flooded in in 1998, 1999 and 2000, chasing those rampant internet returns. It's my instinct—I can't say I know I'm right. But I think there's going to be some negative forces in the venture community.”