JP Morgan 2016
Posted on 04/02/2016
The ‘Salmon Run’ of the Life Sciences is over for another year. Here are some take home messages.
Public funding is uncertain but institutional investor coffers are full
The withdrawal of retail (non-specialist) investors at the end of 2015 took 30% from the lifeblood of the life sciences industry. The result has been a correction in valuations. Those who have already raised money saw this as necessary while those who have yet to raise it see it as a market crash. The reality is a healthy and uncomfortable truth; good companies will still float at reasonable valuations while those offering poorer opportunities or simply too much risk won’t succeed in the public markets. The market will look to a number of biotech IPOs that will price this week to take the temperature of the patient and predict the first half of the year. As the U.S. Presidential election looms in Q3/Q4 all bets are off.
There is an upside to the 2014/15 bull-run. VC’s and PE funds were successful in raising money and can now fund early stage or publicly tough-to-explain assets. This is going to be the sustainable feedstock that the industry needs to sort through the good, the bad and the ugly before they emerge into the public markets.
There was continued investor interest in therapeutic plays with solid clinical progress; in the rare disease verticals; and in digital healthcare with applications related to clinical development, diagnosis, monitoring and compliance, and cost management.
In short there is no need to panic. Good companies will get the funding they need – even if it is less than the funding they want.
Confidence in Big Pharma R&D at an all-time low: drives the need for deals
Deloitte’s 2015 R&D report returned a poor report on big pharma’s R&D productivity. Whilst the top 12 have never launched so many new assets, the financial return on their innovation is down to an all-time low of 4.2%. This is a crippling number, less than half what it was only five years ago. In short, as blockbusters are replaced with more focussed specialised therapies, costs of bringing an asset to market are out of line with returns.
Deloitte – and many others at the meeting – question the R&D business model of big pharma. At the same time the smaller, more focused, nimble companies are increasing their ROI where they can be market leaders. The take home was: “The winners in the future R&D landscape will be those that can deliver holistic healthcare solutions”.
Deals, Deals, Deals
The licensing bear pit was raucous and hot. Numerous deals were announced, more deals were being done and large big pharma BD teams were competing tooth and nail for biotech and specialised pharma assets. Only in the afterglow of this mating game will we hear about much of the work that has been done. If the public markets are not driving the industry, licensing – and the revenues it brings – is the source of funding that feeds the entire ecosystem.
No new talent
We are generating new Life Sciences jobs faster than we are generating new biotech talent to fill them. The word around the water holes was of increased competition for agile biotech talent – despite all that pharma retrenchment – and war stories of failed senior hires. These stories are no surprise, we have written about them before, but more widespread recognition of the problem was a first for this observer. The legacy headhunting model is distrusted. Everyone recognised the importance of better due diligence at Board and exec level to ensure that the money is put in the hands of the right talent, not simply the available talent. The industry needs more evidence to support its hires as well as its products.
Despite the wringing of hands caused by market falls during JPM 2016 the industry remains diverse, even if the JPM was disappointing in its gender diversity this year. It is innovative outside big pharma and ready to receive the bounty from recent years of fundraising and the asset-poor pharma coffers.