Speaking at MedCity INVEST, a national healthcare investing conference in Chicago hosted by MedCity News, Jonathan Norris of Silicon Valley Bank, alongside Ryan Jalowiecki from PwC, highlighted the latest trends in the public healthcare markets. If you are a serious biopharma investor, you won’t want to miss this.
Big Pharma Influence
As I’m sure many biopharma investors have noticed, there has been a slowdown in the number of IPOs and M&As throughout the industry. After what has been described as a peak year in 2015, deal volume slumped in 2016 and has remained sluggish so far this year.
Interestingly enough, Jalowiecki blamed the slowdown on what has caused some momentary hesitation in several different industries: political uncertainty. With Congress still debating the fate of Obamacare, the American regulatory environment is very much in a state of flux, and that has the ability to make companies hold off on massive deals.
Jalowiecki also said that politics and public perception have put pressure on the bigger drug companies in relation to pricing strategies. He said that, as of late, the big pharma players have “ratcheted down the market’s expectations for ‘go-forward’ pricing.”
Touching on the generics space, Jalowiecki said that “many of the folks have been hampered by pricing,” which has led to an industry-wide strategic reassessment that is focusing on new research and development strategies.
Investors should note that iShares U.S. Pharmaceuticals ETF IHE has gained nearly 15% since election day, but the fund fell nearly 2% on Wednesday as the uncertainty in Washington continues to heat up.
Biopharma Trends
The conversation at MedCity INVEST quickly transitioned from the influence of big pharma companies to the latest developments in the world of venture capital-backed biopharma companies.
As we already noted, the industry saw an interesting peak in deals volume in 2015. According to Silicon Valley Bank Managing Director Jonathan Norris, the market saw a total of 64 VC-backed biopharma exits in that year. This included a whopping 42 IPOs and 22 M&As. Those figures took a dive in 2016, as we only saw 28 IPOs and 14 M&As on the year.
Norris also highlighted the total number of U.S. biopharma investments over the past two years. Overall, there were 612 deals in 2015, totaling $9.8 billion in investments. In 2016, that figure fell about 20% to just $7.8 billion. Nevertheless, Norris noted that biopharma investments have steadily risen since 2010.
Breaking it down specifically, Norris said that about 40% of the biopharma IPOs in 2015 and 2016 were companies in the preclinical or Phase 1 stages. He also noted that we’ve started to see a move away from this trend, as the few IPOs we’ve seen so far this year have mostly been Phase 2 companies.
Norris also looked back at his projections from early 2017. Although we’ve only seen 11 IPOs so far this year, Norris said that he still expects his original projection of 28-32 IPOs in 2017 to be just about accurate.
Investors will note that the popular biotech ETFs, including the SPDR S&P Biotech (MX:XBI) ETF XBI and the iShares NASDAQ Biotechnology ETF IBB, have trended upward since the election, but both were hit hard today--along with the rest of the markets.
Norris did point out that, although the 2015 IPOs did not end up performing very well, the fewer number of companies in 2016 actually “held fairly steady.”
Make sure to check back here for more coverage of the MedCity INVEST conference and all of the latest news in healthcare investing!
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