At Venture Conference, Life Sciences Leaders Discuss Market Challenges and Opportunities for 2024

By Allison Proffitt

August 27, 2024 |At last week's Bioprocessing Venture, Innovation, and Partnering conference in Boston, a panel moderated by Peter Lee, CEO of Avant Bio, convened to share their perspectives on the challenges and opportunities that lie ahead in 2024, offering a deep dive into the current state of the market, mergers and acquisitions (M&A), and the complexities of going public.

Market Outlook: A Gradual Thaw

Lee began the discussion by asking the panelists how they see the year shaping up. Prem Tumkosit, Vice President at Merck & Co., acknowledged the difficulties of the past few years, noting that many promising deals fell apart as equity markets deteriorated. The last few years were heartbreaking, he said, and cash was quite scarce. “I think that’s been really challenging and frustrating in the past few years,” Tumkosit said. While things haven’t completely turned around, he acknowledged “a 95-degree difference” from 12-18 months ago.

Despite these challenges, Tumkosit expressed cautious optimism, believing that the markets are beginning to thaw. "We encourage our companies to focus on fundamentals and profitability," he added. "I’m feeling more positive than I have been in the past couple of years or so. I am hoping toward the end of the year we can probably transact a few things."

Audrey Greenberg brought a unique perspective to the panel. After spending almost a decade as an investor, in 2020 she launched The Center for Breakthrough Medicines, a cell and gene therapy CDMO that raised capital in 2021 and was acquired by SK Pharmteco in 2023. Greenberg echoed similar sentiments, reflecting on the difficulties faced by the gene therapy sector. "Last year—2022, 2023—were not great years, especially in cell and gene therapy," she said. However, she highlighted an increasing interest in the field, more interest in outsourcing by big pharma, and more diversity in the supplier base. "There are fewer companies out there, so the pie is shrinking, but the rate is growing," she noted.

Bryan Kipp, Senior Vice President at Revvity, provided a broader historical perspective, noting that the early 2010s saw a trend toward vertical integration in the life sciences as recombinant proteins and monoclonal antibodies began to move toward commercialization. "Everybody vertically integrated," he said. "And it made a ton of sense because it was a rapidly evolving industry, high gross margins, very, very attractive.”  As the COVID pandemic approached, the revenue multiples seen on the supplier side moved to Contract Development and Manufacturing Organizations (CDMOs) with new opportunities and needs for capacity expansion. “That led to rational exuberance,” Kipp said. Today there are more than 400 CDMOs globally, he said, and to survive, they are focusing on ways to implement continuous processing and reduce their costs. Pharma is also seeking their own new opportunities, focusing on novel therapeutics, multispecifics, bispecifics, dual-capacity antibody drug conjugates, protein engineering, and other advanced therapies. (See, Amgen’s Jerry Murry on the Next Steps in Bioprocessing and Manufacturing)

Public, Private Divide

Tumkosit stressed the importance of understanding the differences between private and public markets. "When you’re a late-stage private company, you can see the world very narrowly with regard to how you think about your performance against your peer set,” Tumkosit warned. But the competitive landscape after an IPO changes. He also highlighted that people often ignore the power of a really simple story that you can tell convincingly with good evidence.

“I think it’s seductive to think that the innovation will carry the day,” he said, but in the public markets, "You have to be able to relay that story and proselytize that story to as wide an audience as possible, including your customers, including your public company investors.”

Greenberg added that the costs associated with being a public company are significant. "It’s really expensive to be a public company," she said, and with the outside scrutiny and the activist investors, you just have to have a great board. She recommended considering carefully the percentage of the company you want to offer for public control, thinking ahead to what you want your exit to look like. Lee agreed. “You have to be very realistic,” he said. “What is that value creation path after you’re a public company, because it’s a completely different investor audience and you’re doing it all in the public eye.”

Kipp, reflecting on the evolution of the market, remarked that the landscape has changed considerably. "The word ‘hope’ doesn’t exist anymore," he said. The field is crowded and, “so many people have been burned.” Cost of equity is extremely expensive, he added. He challenged owners to develop, “an understanding of what your right to win is, conviction in your market, and being able to tell a clear story.”

Mergers and Acquisitions: Strategic Considerations

As the discussion turned to M&A, Lee asked the panelists to share their key learnings. Greenberg emphasized the importance of executing against a well-defined plan while recognizing the soft factors that often influence success, such as culture (both company culture and national culture), fit, and strategy. "SK Pharmteco had a roll-up strategy. There were five different CDMOs that got smushed together into this holding company and it all happened at once," she explained. With eight plants around the world, “you cannot underestimate the complexity with systems, culture, and—candidly—executive teams… There’s always this fight for power this happens.” She advocated for a champion CEO and a closely-aligned board on the same page regarding strategy and execution.

Kipp admitted that M&A is often opportunistic than planned—a state of affairs he regrets—but highlighted an investor policy that says M&A cannot be dilutive. “At some point, after multiple dilutive acquisitions, the market rolls against you."

Greenberg highlighted the constraints posed by capital allocation in large conglomerates like hers, despite the desire to capitalize on market opportunities. "While we would love to take advantage of market opportunities, we don’t have the capital allocation to do it,” she said, though she hinted at major announcements in the next month or two.

Tumkosit closed with a recommendation to look ahead. “As a company that’s looking to maybe transact with a larger company… in the next 12-24 months or so, it behooves you to get to know the strategics in a more intimate way,” he said. “You don’t want them to be first exposed to you when you are in a process, because that’s not a great way to generate value.”