For biotech dealmakers, it’s everything, everywhere all at once

Biotech executives are reaching into a deep bag of tricks to come up with the best possible ways to live up to their ultimate potential. The dual-track option, where a company pursues both an IPO and an acquisition, is becoming not just the norm, but a necessity.

Some are taking it a step further, many industry experts told Fierce Biotech on the sidelines of the J.P. Morgan Healthcare Conference last week.

“There are three tracks. We have clients that are pursuing IPO funding, or licensing or M&A. And it's really which will come together first,” said Randy Sunberg, chair of the North America Healthcare & Life Sciences Group, and partner in the transactions group for Baker & Mckenzie.

It’s all part of a frenzied biotech market coming down from a prolonged bear market. Executives are keeping their options open and are more prepared to change plans at a moment’s notice.

Carmot Therapeutics used a dual-track process this fall, ultimately selling off to Roche for $2.7 billion in December. CEO Heather Turner confirmed that the biotech had been considering an IPO at the same time.

A company can’t just turn up on Wall Street and start an initial public offering, so this dual-track process means a lot of time, energy and money spent for an option that ultimately might never happen.

See the Fierce team's coverage of the 2024 J.P. Morgan Healthcare Conference here

“It is resource intensive, obviously. And you also don't want to bet on two tracks and not be able to deliver on either,” said Mubadala Capital investor Ayman AlAbdallah.

Sharon Flanagan, San Francisco managing partner for Sidley, said that companies have to hire lawyers, and auditors and bankers to work on the listing.

“If you want to have that as an option, you have to start the process,” Flanagan said. “And then as they're getting close to the end of that preparation, they're looking around and saying, ‘Okay, now we have an option, we can either go forward with the IPO, or we can turn and see what our other opportunities are for an M&A transaction.’”

The IPO leads in a dual-track scenario because M&A can progress fast and furious towards a closure.

“And then they come and meet at the end. And you see which one is going to be the more compelling for the investors,” Flanagan said.

Nate Chang, operating partner of life sciences at Playground Global, said dual-track is a good option in a backlogged IPO market. While some biotechs are trying to get out the door, he thinks clinical-stage companies are going to do better this year rather than those without human data.

“The question is: is a public market ready for an ingestion, for another bolus of new companies? And I think the setup is still going to be centered around clinical-stage companies with data—Metagenomi will be an exception,” Chang said.

For a triple-track process, Sunberg said that a company that ends up securing the cash through an IPO might be able to delay the licensing deal with a larger company until more clinical data is in hand. That way, they can command a better price later on.

“The M&A and licensing are usually kind of simultaneous dual track,” Sunberg said.

If a company has just one product, the conversation goes hand in hand. Buy the whole shop, or just strike a deal for the asset? If a company has multiple programs, the buyer would have to want the entire library, and that’s not always the case. A more focused licensing deal might be the better option.

Another option is to sell the program rather than license it. Then the remaining assets can stay with the original biotech.

This brings us to another deal option that experts say could become more fashionable this year: the spinoff or divestiture. AlAbdallah said that 2024 might bring more of these types of deals, as companies with a diversified and broad pipeline seek to pare down to conserve cash. We’re seeing plenty of that already, with biotechs cutting programs liberally to put cash toward their most prized assets. But AlAbdallah thinks this could spur some company creation, too.

“For example, companies that have a mixed pipeline of oncology and autoimmune diseases might diverge and just pick one to stick to, with the other spun out,” AlAbdallah said.

Biotechs may also start to look to their peers and decide together is better. Reverse mergers picked up throughout 2023 with examples including Lenz Therapeutics absorbing Graphite Bio in November 2023 to stock its bank account with $225 million. When done right, it means that companies that need money can find another with cash but programs that are stagnating, and they agree to come together. But Flanagan said it’s a tough decision to make.

“Because to do that transaction, to be the company with the cash to basically say, ‘We don't believe/our investors don't believe in our programs anymore,’ that's a pretty significant thing to conclude,” Flanagan said. “So that's an unusual moment in time.”

Biotechs are also opting for more straightforward partnerships and licensing collaborations with Big Pharmas. We’ve seen multiple deals with billion-dollar biobuck potential dropping nearly every day. Flanagan said these deal options are a way to get liquidity without a full sale.

Roel van den Akker, PwC partner and pharmaceutical and life sciences deals leader, called these types of deals “the lifeblood of our industry.” But he expects these deals to become even more creative this year.

Another option is royalty financing, where a biotech gives up a percentage of potential future sales in exchange for a fixed cash amount now. A major player in this space is Royalty Pharma, which signed an agreement with Karuna Therapeutics for $100 million upfront in March 2023. The neuroscience-focused biotech then sold to Bristol Myers Squibb for $14 billion to close out the year.


Big ships, bigger deals

But the golden goose in biotech, usually, is a big M&A transaction. Some biotechs do stick around through commercialization, but pharma is always shopping for the next best thing. It’s part of the fabric of the industry.

“I think it is interesting the extent to which we lionize that activity as sort of the end all, be all. That what success looks like for a biotech company is getting sold,” said Roivant Sciences CEO Matt Gline—who batted back rumors of his plans to sell the vant Immunovant. “I don't have a judgment on that. I think it's interesting, and I'm not sure it has always been true.”

Flanagan said that M&A has taken over as the main exit strategy for companies as the IPO market has soured. That may be changing, with several companies taking the leap already this year.

Another expert who questions the role of M&A is Chang. He thinks the bigger focus needs to be on the science.

“People have that expectation of M&A saving the sector. I think my view would be, we still need to focus on the fundamentals—these companies having transformative therapies which are underpinned by their data, to drive strategic interest,” he said.

Prognostication on whether M&A is a big deal or not aside, Gline said the amount of M&A that came at the end of 2023 was “extraordinary.”

“It is evidence of the seismic shifts of Big Pharma … that they feel the need to go out and pour all of this capital into pipeline construction,” Gline said.

Some of the biggest drugs in the world—see AbbVie’s Humira—are going off patent in the next six years, Flanagan said. The pharmas have to replace that revenue somehow. She has seen estimates that the revenue to be patched up is in excess of $100 billion.

Then there are companies like Pfizer, which reeled in cash during the pandemic and now faces a reckoning of what next?

“There is just this intense focus on filling the pipeline. And obviously, the biotechs are the ones who have those interesting programs,” Flanagan said. “So I think it's a good meeting of needs—you've got Big Pharma looking for pipeline, you have biotech needing the capital to bring those programs all the way to approval and to the market. It's a really good way for everyone to bring their strengths. Everyone wins.” 

Gline himself has $7 billion to spend thanks to selling Telavant to Roche.

“We're meeting everyone we can. Big pharma, small biotech and everything in between,” Gline said.

And as pharmas wheel and deal, they take stock of their own programs too, and sometimes they need to find new homes for them. Roivant is happy to offer its services. In the case, of Telavant, the company had blossomed from a collaboration with Pfizer around the TL1A-directed antibody RVT-3101 barely a year prior. When Pfizer deprioritized it, Roivant stepped in.

“Look, these are big ships, and they're hard to change course and I think there's just more work to do. I think those shifts create opportunity for people like us where, you know, if you've just spent billions of dollars acquiring drugs in one therapeutic area, there's probably something else that's gonna fall,” Gline said.

“And that doesn't mean they're bad programs—it just means you've made a strategic change and we are excited about opportunities that rhyme with that.”