Biotalk

During this episode of Biotalk, Geoff Meyerson, CEO of Locust Walk, unpacks our 2023 Q2 Report: Global Trends in Biopharma Transactions Report. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets, strategic partnering, and M&A.

To download this report, please go to locustwalk.com and go to our “Insights” page. We are happy to speak with your team if you have questions about our views or if we can provide any perspective or guidance to your organization.

Timestamps:

Deal Context: 1:12

Future Outlook: 6:00

Our Best Advice for the Current Market: 7:13

Transcription:

Welcome to Biotalk. My name is Geoff Meyerson, CEO and Co-founder of Locust Walk, and you are listening to Biotalk, our podcast for biotech deal makers.

This episode of Biotalk is focused on Locust Walk’s 2023 Second Quarter market conditions Report, in which we apply the latest data to analyze current activities in the biopharma deal landscape. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets and strategic partnering and M&A activity.

Our report covers key takeaways for the sector across US, Europe and Asia geographies for a comprehensive view of biotech deal making. We invite you to review our report and hope you will find it useful in your business. To download this report, please go to locustwalk.com and go to our “Insights” page. As always Locust Walk is happy to speak with you further if you have any questions about our views or if we can be helpful to guide your organization through the current market environment.

Deal Context, Quarter Highlights and Key Takeaways, and Future Outlook

In the next few minutes, I will provide dealmaking context, highlight events that have made a critical impact on the biotech industry, and provide our outlook for the future and our best advice on how you can survive as a biotech deal maker.

To provide deal context (Jumping right in)

Jumping right in, public markets have shown some signs of stabilization this quarter, with the XBI exhibiting a slight rebound, up by ~8% since the end of the first quarter

Nevertheless, this correction brings the XBI back to its position at the start of 2023, and it remains up only 9 percent over the last twelve months, underperforming the S&P  which has been up 16 percent over the same period

The number of companies trading below cash has come down from March (212 companies in March, compared to 165 companies in June), but the figure remains significantly elevated and we’ve largely retraced levels seen at the beginning of the year, which were high relative to historical trends

Additionally, the gradual revival of the XBI is driven by a chain of positive licensing deal flow this quarter, with average aggregate licensing deal value up 20% from Q1, to $705M

Notably this rise in deal value is accompanied by a 40% decline in deal volume, reflecting the shift towards fewer deals and larger bets

In contrast, the venture market which has favored later-stage assets, licensing deals indicate that partners are taking a longer-term view with significant investments in discovery/pre-clinical assets across modalities and indications. This might sound counterintuitive based upon things that we are hearing, but the data doesn’t lie and we are still finding early deals being done.

M&A dealmaking has been more moderate with an average deal size of $1.5B, which is less than half of the $3.9B in average deal size last from last quarter; keeping the value even this high is largely driven by the Merck / Prometheus deal, and without this deal, quarterly M&A would have fallen in line with the two lowest quarters for deal value in 2022 and average value. Importantly though, 20 deals were completed compared to 13 deals in the first quarter.

This episode of Biotalk is focused on Locust Walk’s 2023 First Quarter Market Conditions Report, in which we apply the latest data to analyze current activities in the life sciences deal landscape. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets and strategic partnering and M&A activity.

To download this report, please go to locustwalk.com and go to our “Insights” page.  As always Locust Walk is happy to speak with you further if you have any questions about our views or if we can be helpful to guide your organization through the current market environment.

Timestamps:

Deal Context: 1:14

Future Outlook: 5:23

Our Best Advice for the Current Market: 8:53

Transcription:

Welcome to Biotalk. My name is Geoff Meyerson, CEO and Co-founder of Locust Walk, and you are listening to Biotalk, our new podcast for biotech deal makers.

This episode of Biotalk is focused on Locust Walk’s 2023 First Quarter market conditions Report, in which we apply the latest data to analyze current activities in the life sciences deal landscape. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets and strategic partnering and M&A activity.

Our report covers key takeaways for the sector across US, Europe and Asia geographies for a comprehensive view of biotech deal making. We invite you to review our report and hope you will find it useful in your business. To download this report, please go to locustwalk.com and go to our “Insights” page. As always Locust Walk is happy to speak with you further if you have any questions about our views or if we can be helpful to guide your organization through the current market environment. Locust Walk is happy to speak with you to review our quarterly findings in more depth or otherwise provide guidance for your organization through the current challenging environment to achieve its business objectives.

Deal Context, Quarter Highlights and Key Takeaways, and Future Outlook

In the next few minutes, I will provide deal making context, highlight events that have made a critical impact on the biotech industry, and provide our outlook for the future and our best advice on how you can survive as a biotech deal maker.

To provide deal context (Jumping right in)

Prevailing market trends from 2022 continued into the first quarter of 2023 as the context for deal making, which maintains unfortunately the correction for the frothy and capital-saturated biotech market of the COVID era.

My view is that valuation data that is publicly available does not accurately reflect the reality of the current financing landscape.

Insider led rounds are anecdotally being done at down round valuations and that isn’t reflected in the overall data and some insider led rounds have artificial valuations to avoid righting down their portfolios.

In contrast, outsider led rounds have been able to command step ups that are flat to 20% vs the 2x they would have received in a more favorable market. These deals are taking much longer to close with many more investors required to be called per dollar committed.

The list of 200+ companies trading below cash speaks to the need for strategic alternatives. Many of these companies have not decided that doing a strategic deal is their best outcome but more of them have been choosing that path than before. Some have had negative data forcing this path but others recognize that if they enter into discussions with more cash in the bank, they will have more strategic options available to them.

We have seen more public companies throwing in the towel recognizing that they cannot finance and need to find a home for their programs.

This capitulation will lead to deals later this year and thus there will be a lag in getting deals done.

On this episode of Biotalk, Locust Walk welcomes Andrew Allen, M.D., Ph.D., Co-Founder, President, CEO, and board member of Gritstone Bio to the podcast. Prior to Gritstone, Dr. Allen co-founded Clovis Oncology and served as CMO. He was CMO at Pharmion Corporation and also served in clinical development leadership roles at Chiron Corporation and Abbott Laboratories and worked at McKinsey & Company. Dr. Allen discusses the founding of Gritstone bio, it’s evolution since 2015, and the two key aspects to the Gritstone platform: novel antigen identification and an immunogenic vaccine platform consisting of proprietary self-amplifying mRNA and chimpanzee adenovirus delivery systems.

Locust Walk is happy to speak with you further if you have any questions about this episode or if we can be helpful to guide your organization through the current market environment.

Timestamps:  

 2:13: What is your perspective on how a CEO should be thinking about the current environment based on your previous experience with these types of downcycles?

 5:00: How do you think about creative deal making as a CEO to make sure you’re not missing out on an opportunity elsewhere?

 11:51: What was it about the company that convinced you that you were working on something differentiated, and was worthy of being a company?

 20:13: How would you describe the evolution of Gritstone and what is next as the company grows and evolves?

 23:30: Is Edge foundational to the concept of a personalized cancer vaccine?

 23:48: How is it that Edge contributes to buzz-worthy type data for Gritstone?

 27:57: As we are starting to think through the various versions of mRNA delivery technologies, particularly within the context of antigen delivery for vaccination, how should our listeners be thinking through differentiating platforms to determine a good platform for a vaccine and what actually matters when looking towards platforms?

 32:43: As we think about RNA-focused medicines, are there certain things you’ve been working on that has caught your eye?   

 35:33: How do you think about modality blending within RNA and do you think it’s the way the industry might be moving?

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Our first Biotalk podcast is focused on Locust Walk’s 2022 year-in-review market conditions, which was released the first day of JPMorgan and rapidly accumulated over 500 downloads. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets and strategic partnering and M&A.

We wanted to share some insights into the report and discuss key trends, opportunities and predictions for the industry in 2023.  To download this report, please go to locustwalk.com and go to our “Insights” page.  As always Locust Walk is happy to speak with you further if you have any questions about our views or if we can be helpful to guide your organization through the current market environment.

Timestamps:

Recap of How We Got Here: 1:03

Key Trends for Biotech Management Teams to Monitor: 4:36

Locust Walk Expectations for 2023 Biotech Market: 6:01

Signals of Market Recovery to Watch For: 9:45

How to be Successful in This Market: 11:19

Transcription:

Welcome to Biotalk. My name is Geoff Meyerson, CEO and Co-founder of Locust Walk, and you are listening to Biotalk, our new podcast for biotech deal makers.

Our first Biotalk podcast is focused on Locust Walk’s 2022 year-in-review market conditions, which was released the first day of JPMorgan and rapidly accumulated over 500 downloads. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets and strategic partnering and M&A activity.

We wanted to share some insights into the report and discuss key trends, opportunities and predictions for the industry in 2023.  To download this report, please go to locustwalk.com and go to our “Insights” page.  As always Locust Walk is happy to speak with you further if you have any questions about our views or if we can be helpful to guide your organization through the current market environment.

It’s important to review recent history to provide context for the path ahead.  The industry became victim of its own success

Easy monetary policy with 0% and even negative interest rates in the US and major economies coupled with the success of COVID vaccine development and the intense focus on the biopharma industry to save the world led to a massive wave of biopharma fundraising and industry expansion

Starting February 2021, a mere 2 months after the first COVID vaccine approval, the balloon started to deflate with the gradual decline in the XBI and gradual reduction in financings although still occurring at a frenetic pace. In retrospect it is fascinating that the public market was declining yet the volume remaining amazingly high for crossovers, IPOs, and follow-ons.  During the 2020 and 2021 boom and from before COVID, way too many companies were created, too much private capital was invested and way too many companies went public leading to an explosion in number of publicly traded biotechs

2022 was a perfect storm of events occurring all at once leading to the first time in memory where macro political and macroeconomics took over control of the industry direction. Over these 12 months the continued aftershocks from COVID and the industry resetting because of too much company supply and too little capital availability created an accelerating negativity to the environment.  The Fed hiked rates 4.25% through the course of 2022 in response to the fastest inflation in 40 years, which led to a risk off environment from investors

2022 the XBI fell 25% on the year and 48% since its February 19, 2021 high. IPO issuances stood at only 9 companies compared to 92 in 2021

Companies both public and private have been forced to prioritize their portfolios, focusing on their most advanced viable assets and unfortunately downsize their teams. A consequence of this contraction in pipelines and employment is greater capital efficiency and return on inve...