As Prescribed


On the last day of the 2024 J.P. Morgan Healthcare Conference, we’re taking a look back at the last year to revisit the developments that had a considerable impact on the life sciences industry, including the transactional market.

As many others have reported, 2023 was a tumultuous year for the life sciences industry. Life sciences companies faced significant challenges raising funds in 2023. According to the 2023 HSBC Venture Healthcare Report, biopharma companies raised approximately $22.9 billion in venture capital deals, representing a 23% decrease from 2022, with early-stage/first venture capital financings hit harder than later-stage financings.

With some notable exceptions, many financings were based on a strong clinical narrative and many first financing deals were closer to the clinic than in previous years. Additionally, almost half of all venture capital deals were insider and add-on financing rounds as opposed to rounds with new investors.

The majority of life sciences companies did not fare much better in the public markets. A September 2023 Leerink Partners report noted that “a historically high percentage of companies [were] trading at or below their cash value” and the stocks of 154 biopharma companies with market caps between $200 million to $10 billion had lost at least 20% of their value as of the report date.

The initial public offering (IPO) window remained virtually closed for biopharma companies in 2023, with the HSBC report showing only 11 completed biopharma IPOs. Almost all of these 2023 IPOs had their books fully subscribed by existing private investors. Some were even oversubscribed.

As a result of this scarcity of funds, life sciences companies had to be creative in operating and funding their businesses. Numerous companies reported layoffs and pipeline prioritizations in an attempt to preserve cash, while many other companies were shut down entirely. According to Fierce Biotech’s 2024 layoff tracker, there were 187 reported biopharma workforce reductions in 2023, representing a 57% increase over 2022. The mean workforce reduction size was 39% for those companies that reported reduction size. It was suggested that the hardest-hit roles were commercial sales and scientist positions at the manager level and below.

Citing a survey commissioned by CRO Icon, Fierce Biotech recently reported that with the difficult fundraising climate, 48% of the biotechnology companies consulted for the survey were using partnerships with large pharmaceutical companies as a major financing method. Given concerns about the financial viability of potential collaborators, many companies seeking partnerships with large pharma partners faced longer deal timelines, increased diligence scrutiny, and additional protective mechanisms built into partnership agreements, such as required notices upon reaching certain cash levels. Other forms of major non–venture capital financing included government grants, angel investments, academic funding, and non-government grants.

Against this difficult financing backdrop, life sciences companies were faced with numerous other challenges throughout the year that required changes to operations or transactions. Several of these events are discussed below.

Collapse of Silicon Valley Bank

One of the early challenges to the life sciences (and broader technology) sector was the collapse of Silicon Valley Bank (SVB) on March 10, 2023. At the time of its failure, SVB was the primary banker for numerous venture-backed life sciences companies, with many companies having all or almost all of their cash used for working capital purposes deposited at SVB.

Prior to the government’s announcement that 100% of SVB’s deposits would be covered and accessible the next business day, there was widespread concern among SVB customers regarding (1) when they would be able to access their cash, (2) how they would fund expenditures such as payroll if cash were not readily available, and (3) what percentage of their cash would be recoverable given that the Federal Deposit Insurance Corporation only covers up to $250,000 in deposits.

The SVB collapse caused many life sciences companies to rethink their investment philosophies and to adopt more conservative and protective investment policies going forward.

IRA Price Negotiation Provisions

One of the main objectives of the Inflation Reduction Act of 2022 (IRA) is to address what are deemed high drug prices and Medicare expenditures through three main mechanisms: (1) allowing Medicare to negotiate the price of certain drugs directly with biopharma companies, (2) redesigning Medicare Part D to cap out-of-pocket drug costs for Medicare patients, and (3) limiting Medicare drug price increases to an inflationary measure. In August 2023, the initial list of 10 drugs subject to price negotiations was announced.

Life sciences companies and industry associations have spent a great deal of time considering the impact that the IRA will have on individual companies as well as the industry at large.

Companies are having to carefully examine their portfolios and pipelines to determine the best course of action based on limited information. Furthermore, companies are beginning to include IRA protections in licensing and partnership agreements to allow them to decrease royalty payments in the event a developed drug is subject to price negotiations. Several companies and industry associations have also filed lawsuits challenging the price negotiation provisions of the IRA on various constitutional grounds.

We will continue to follow the trends in this area as they develop.

FTC Scrutiny Over Life Sciences Transactions

In 2023, the Federal Trade Commission (FTC) continued its aggressive approach to reviewing life sciences acquisition transactions, notably challenging (1) Amgen Inc.’s $27.8 billion acquisition of Horizon Therapeutics plc and (2) Sanofi’s exclusive license to Maze Therapeutic Inc.’s product candidate for the treatment of Pompe disease for up to $755 million.

The FTC’s argument in the Amgen case was unique as it focused on Amgen’s theoretical use of bundled rebating to pressure insurers and pharmacy benefit managers into preferring two Horizon products that did not have any current competition on the market. Amgen was eventually allowed to move forward with the Horizon acquisition subject to entry into a consent decree with the FTC.

The Sanofi challenge was unprecedented given the small transaction size and the early-stage nature of Maze’s product candidate, which had just completed Phase 1 clinical testing. The FTC’s complaint suggested that Sanofi was using the transaction to eliminate an impeding competitor even though Maze’s product candidate still had to undergo substantial additional clinical testing before it would ever reach the market. Sanofi elected to terminate the transaction with Maze rather than opposing the FTC.

The FTC’s aggressive stance against life sciences transactions has caused many biopharmaceutical companies to carefully consider their acquisition strategies, including the timing for such transactions. Many companies are spending more time and money on detailed upfront antitrust analyses to determine whether a given transaction is likely to withstand scrutiny. Some companies will abandon transactions if antitrust analysis suggests there is a high likelihood that a transaction would be challenged.

Positive Developments

Despite these challenges, there were many bright spots for the life sciences industry in 2023, including the following:

  • The FDA’s Center for Drug Evaluation and Research approved 55 new drugs, with the top three therapeutic areas being oncology (24%), neurology (9%), and infectious diseases and hematology (each at 5%).
  • The FDA’s Center for Biologics Evaluation and Research approved a number of cell and gene therapies, vaccines, and blood products, including the first-ever CRISP-Cas9-based gene-editing product.
  • In its Pharmaceutical and Life Sciences: U.S. Deals 2024 Outlook, PricewaterhouseCoopers reported that mergers and acquisitions (M&A) activity in pharma and biotech dropped 8% in number of deals but increased 37% in value for the period of mid-November 2022 to mid-November 2023, compared to the previous 12-month period. In addition, several large M&A deals in the industry were announced in December 2023.
  • Despite the tough venture financing environment, there were several biotech unicorns that were able to buck the trend and raise sizeable rounds.

It could be the post-conference buzz, but the new deal announcements in 2024 look promising for the life sciences transactional space in the months ahead. Keep reading As Prescribed for more news and analysis on this area’s important trends and developments as the new year progresses.