JPM 2019 |The fundamentals remain strong despite the doubtersBy Nick Stephens
I’ve taken longer than usual to write my JPM blog this year. It was a week when there was such a division of opinion between optimism and pessimism, that I wanted time to reflect on exactly what is happening.
Where was the doubt and where was the clarity?
Most of the doubt was about money. Will the IPO markets remain open in 2019 and will VCs continue to keep the taps open? Will the combination of macro-economic factors and fears that the VC-funded bull run has overshot result in a pullback or even a crash? Will the small M&A deal flow of 2018 accelerate as big pharma and biotech bolster their pipelines with new drugs? Many are expecting huge volumes of M&A from micro-cap ($50 – $200M) to mega deals. The Trump shut down is forcing a slow down as, while it lasts, IPOs and public company mergers are frustrated along with almost all of the activity at the FDA. In which case, post-JPM, the debate continues and while that’s going to be fundamental to the industry’s well-being in 2019, there isn’t a lot that many people working inside the biotech industry can do about it other than to drive forward with innovation and value creation.
So much for the doubt and uncertainty. But once you get past the financial future gazing, it’s obvious that 2019 has started exactly where 2018 finished, driven by some particular trends that are going to be really influential this year.
IO is still the hot ticket – if you can afford it
While, immuno-oncology is still the area of greatest value creation and excitement about its game-changing potential, new IO therapies cost seven-digit sums and that led to a lot of debate at JPM about the need for new reimbursement models, such as payment by results. Close on IO’s heels were cell and gene therapy, oncology generally, CNS, orphan and anti-infectives and while IO is going to be the hot ticket for a while yet, attractively lower valuations in these other indications will create other potentially more attractive options for investors.
CMOs are the star turn
Yes, CMOs, specifically with cell & gene therapy experience are in very high demand. Increasing scientific complexity in research is leading drug developers to look for skill sets in their R&D teams that mirror the increasing specialisation of their drug pipeline candidates. Not so long ago, broader skill sets were more acceptable but at JPM it was clear that this is no longer the case and investors’ criteria are tightening.
China deals continue
The number of delegates from Asia was significantly up, looking for deals, investment and talented people. China’s domestic biotech market is seeing rising investment as valuations cooled in Q4 2018 (up to 30% down), making companies more attractive and for M&A as well in 2019. The combination of these developments has contributed to the growing two-way traffic of talent between life sciences businesses in the US and China. JPM revealed the growing strength of this axis, possibly at the expense of Europe. The recent crackdown on generic pricing by the Chinese government is also pushing Chinese companies to develop novel R&D pipelines, again making M&A more and more likely.
We anticipated these trends in our newest RSA Viewpoint, particularly as they relate to talent and leadership so please have a look at our more detailed analysis. There were plenty of unknowns too. What will Amazon do with the Berkshire Hathaway, JP Morgan tie-up and what will its impact be? Are medical cannabis companies going to thrive? What will be the impact of tariffs, Brexit and all the other unknowns that we can only speculate about? There was plenty to discuss and we were lucky enough to hear the views of over 100 CEOs at our JPM leaders’ reception. If you’d like to hear more about what happened at JPM19 or find out how our successful and industry leading Proof-of-Candidate® approach can help you then please contact me.
Nick Stephens, Executive Chairman | Nick.Stephens@theRSAgroup.com