BioCentury This Week

Ep. 336 - Cautious Optimism and M&A Momentum

• BioCentury • Season 6 • Episode 336

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There is cautious optimism around continued M&A momentum and the public equities markets as biotech heads into the New Year. On a special edition of the BioCentury This Week podcast recorded in London during London Life Sciences Week, BioCentury’s Simone Fishburn and Stephen Hansen were joined by a trio of guests to discuss their key takeaways from the week and expectations for next year, including trends in M&A and creative deal structures for business development.
The group also discussed the potential for biotech venture investing to make a comeback as a key asset class for LPs, especially in the U.K., as the government continues to encourage pension funds to invest more broadly.
The three guests joining BioCentury included Luciana Griebel from law firm Morgan Lewis, James Critchley from PJT Partners, and Carmine Circelli from the British Business Bank.
The podcast was recorded Nov. 19 on stage at the Victoria House in London as part of the 3rd Biotech CEO & Investor Reception.
BioCentury’s next recording “on the road” will take place on the sidelines of the annual J.P. Morgan Healthcare Conference in San Francisco in January at the 11th East West Healthcare Reception hosted by BioCentury, Panacea Venture and Maytech Global Investments.

View full story: https://www.biocentury.com/article/657686

#BiotechMandA #DrugDevelopment #VentureCapital #LifeSciences #LondonLifeSciencesWeek

00:00 - Introduction
02:24 - Market Recovery
08:02 - Growth and Influence
16:24 - Creative Dealmaking
21:40 - Role of CVRs
25:52 - Pension Funds and Venture Capital
30:09 - AI Bubble
34:17 - Accelerating Clinical Trials

Morgan Lewis has prepared its materials for this podcast for general informational purposes only. They do not and are not intended to constitute legal advice. This podcast was recorded on Nov. 19. Morgan Lewis does not guarantee the accuracy or timeliness of the information contained in these materials and disclaims any obligation to advise you of any changes in the law. You should always refer to original source documents for complete information and consult directly with an attorney for advice, including on the latest developments in this rapidly changing area of the law.

To submit a question to BioCentury’s editors, email the BioCentury This Week team at podcasts@biocentury.com.

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[AI-generated transcript.]

Stephen Hansen:

Welcome to a special edition of the BioCentury This Week podcast. I'm Stephen Hansen, director of Biopharma Intelligence here at BioCentury, and we're coming to you live from the Victoria House in London for a 3rd annual CEO and Investor Reception during the London Life Sciences Week. Joining me to discuss key takeaways from the week are Luciana Griebel, Partner at Morgan Lewis, James Critchley, Managing Director of PJT Partners, and Carmine Circelli, Director of Life Sciences at the British Business Bank. And then from the BioCentury side, besides myself, we have our renowned VP and Editor in Chief, Simone Fishburn.

Simone Fishburn:

And what you all need to know about that is that I've gone from being esteemed, can't remember what it was last time. It was something

Stephen Hansen:

Illustrious.

Simone Fishburn:

Illustrious. And now I'm renowned, which is actually also a bad thing, you know,

Stephen Hansen:

just, uh, I have a thesaurus at home and so I just keep trying to find different words.

Simone Fishburn:

Yeah.

Stephen Hansen:

Um. So we've had about two and a half days of meetings, and company presentations at a variety of venues, I think spread all across London, at least I know sort of personally. I can kind of attest to that, how widespread it is.

Simone Fishburn:

Give us your step count, Stephen?

Stephen Hansen:

Well, yesterday I had meetings with investors and companies, and I clocked up more than 16 miles of walking across the city. so if you're looking to get your steps in, this is one of the best places to come to if you're, if you're that kind of person, which I very much am. Not everyone is, but that's fine to each their own. but yeah, I think it just speaks to how widespread things have gotten. It's so, definitely goes well beyond the Waldorfs these days. One other little, maybe little bone to pick with, uh, someone, maybe Simone, before we get started, um, I didn't actually get a badge. I wasn't actually on the invite lists, and I don't know if that's your fault, Simone?

Simone Fishburn:

Uh, it actually, has a badge among all of the Right.

Stephen Hansen:

Did you get, Oh, you got a badge?

Luciana Griebel:

I got one.

Stephen Hansen:

Oh, Luciana's got a badge. Oh, you had one? It was just Carmine and me that were left off.

Carmine Circelli:

Oh, mine's over there.

Stephen Hansen:

My, oh, you've got one. So I'm the only one that didn't do a badge,

Simone Fishburn:

So, so I have to tell you, so it is not actually my fault, but you know what, if I'd had a say, it would've come out the same way.

Carmine Circelli:

True.

Stephen Hansen:

Probably josh's fault, but I'll, uh, we can bring that up later. Alright, anyways, let's let's dive in, let's get started. Simone, I'd like to start with you. one other thing here is that, you know, everyone I think is waiting with bated breath to find out whether or not you're gonna be dancing with the Kaylee Band, this evening. I know that you're gonna leave us in suspense on your decision about that until later, so you don't need to say anything about it now, but we will be peer pressuring you into trying to do that, uh, later. But in the meantime, can you give us a little kind of vibe check and kind of, you know, what, what you've been hearing this week, what people have been saying.

Simone Fishburn:

First of all, I'm not gonna talk about singing or dancing, but I would like to know if there's any Scots in the room and a big, big, big hand for the Scottish football team yesterday. That was something else, wasn't it? Right. So that's all. There we go. There we go.

Stephen Hansen:

There we go.

Simone Fishburn:

There we go. So I don't know that we can score goals of that quality here, but we're gonna do our best. Okay. all right. So what am I hearing? I mean, let's just talk about the recovery and whether it's happening. Okay. Let's just, that, that's all I'm gonna talk about and then I'm gonna throw it to others for their comments. But here are some words that I've heard this week. It's a more disciplined kind of recovery. It is happening, but it's more disciplined. Another person told me it was a timid recovery. Another person said, it's not really better actually. So there's sort of a, a little bit of edging towards optimism. And I just wanna put this in context even that you as our financial writer have in your quarterly previews. I'm gonna say going back, I don't know, 14 quarters now,

Stephen Hansen:

Three years, at least three years' now.

Simone Fishburn:

Right. Been sort of feeling that we're on the edge

Stephen Hansen:

Always, yep.

Simone Fishburn:

And I think everybody is tired of thinking, are we, aren't we? But this time they're sort of saying, maybe this is for real. Let me just add two points, right. On the equities market. One person pointed out to me, you know, follow-ons are on fire, right? So that's probably a good thing. And IPOs are certainly, there's, there's more, not just optimism, but there's sort of more of a feeling that, of that discipline that the right companies might be getting out and doing well when they get out. Now on the private funding side, I think that is where there's still quite a lot of caution and sort of long faces to be honest. And one, one person said this to me, but other people really resonated with this, is still among investors there is a huge herd mentality, this is VCs and this feeling that investors don't wanna go it alone, they will syndicate. So we're seeing these large rounds, which is sort of consistent with that because syndicates are going in with large rounds, but there's still a lot of herding and this

Stephen Hansen:

More concentration.

Simone Fishburn:

Yeah, so there's good and bad in that, right? Like on the one hand there's fewer stupid crap companies getting funded.

Stephen Hansen:

Yeah. Sounds like a good thing.

Simone Fishburn:

On. Which is a good thing, but on the other hand, herding is not necessarily good. You know? Are we gonna end up with, um, like we did a million PD-1s and obviously GLP-1s and so on. So I'll stop there. That sort of, the sort of quick summary of what I've been hearing this week and you, know, you take it from there.

Stephen Hansen:

Sure. Well, James, maybe I can come to you now about, uh, you know, what, what are some of the key takeaways you've, you've been hearing, and maybe you can frame it around your, your areas of expertise, which I, you know, I think, spend a lot of time with M&A, right? So that's, uh, maybe, maybe a good place for us to start.

James Critchley:

Yep. Yeah, happy to. So, uh, I mean, the word, the words that I heard, a positive momentum severity, that I would put into the mix.

Stephen Hansen:

That sounds similar to cautious optimism.

James Critchley:

Indeed.

Stephen Hansen:

Which is a

James Critchley:

indeed, indeed

Stephen Hansen:

a popular phrase.

Luciana Griebel:

That was going to be mine.

James Critchley:

So, um, yeah, I mean, it would be remiss of me, um, wearing my M&A hat to say anything other than there's lots of talk around the positive deal momentum, like we've seen lots of M&A, lots of BD activity, and it just all drives this feeling of lots of activity, uh, within the sector. So that's, that's really a positive and are featured in, not surprisingly, most of the, the conversations I've had. I think the second, takeaway for me is there's just a very noticeable increase in the number and the scale and the quality of private companies. I mean, again, it's not mutually exclusive to the IPO markets being closed for a period of time, but the number of private biotechs that are now progressing through the clinic with decent capital runway is just been quite impressive in a market, uh, sort of market shift from I think where we were 12 months ago.

Stephen Hansen:

There's, there's been a lot of that stay private for longer sort of conversation and, you know, and VCs being willing to keep their companies private longer. Right?

James Critchley:

Yeah.

Stephen Hansen:

So,

James Critchley:

And then I think the third and final one is, is probably that the, there's a bit more of a focus now, I think on thinking harder about capital allocation and what that means for things like P&L capacity to fund R&D. Now again, there's various things that feed into that. It could be results of just natural progression of the pipeline, attrition, or positive readouts or, or sort of pivoting pipeline into different areas that require increased funding, et cetera. Or it's a consequence of M&A where people are having to make room in their pipeline in, in this a prioritization exercise. But that's, that's coming to a lot of conversations. again. For me specifically as it relates to things like, asset divestments or whether you really have the right mix and things could be spun out.

Stephen Hansen:

Are are, are you talking specifically about like large-cap pharmas or are you, meaning like is that even for like the small-cap biotechs or,

James Critchley:

Yeah, I mean, well intersting question. So, so yes, yes for large-cap pharmas, but interestingly we've now seen a lot of M&A and BD activity as well for the bigger biotechs and the mid-caps. So I think some of the big strategic questions that you would normally associate with large pharma have started to creep a little bit into the culprit agenda of the mid-caps as well.

Simone Fishburn:

Sorry, I know we wanna bring the others in, so let, let's do that. But just, you know, one person was talking to me about this rising class. So we've seen Genmab, of course, do acquisitions. We're starting to see the next generation of big biotech sort of being acquirers. We tend to think on the whole of acquisitions as being the pharmas, but there's a, a new class within that, which I think is really interesting to see.

Stephen Hansen:

Um, thank you James. That was very helpful. That was very interesting. Luciana, I wanted to bring you in on this as well, and if you could just maybe share for me a little bit on just kind of what you've been hearing and maybe just your perception around just, uh, just the event itself and just kind of how, how it's changed? I mean, geez.

Luciana Griebel:

Absolutely. So if you think about it, three, four years ago, maybe it was a smaller event and that's really noticeable now and there's a lot of energy around it. It's not just the Jefferies Healthcare Conference, it's a whole London Life Sciences Week, and I think that's excellent for the ecosystem and you can really feel the buzz when you're walking around the Strand and you run into people that you know that are from different countries. And it seems like everyone's coming together in London, which is excellent news for all of us who actually live in London because we get to see everyone on our doorstep. But it's also good for the ecosystem. And it's also good to see because this aligns very well with the U.K. government's plan for the life sciences sector. So getting everyone together this week, is very good. And I think there have been some parallels drawn, uh, with J.P. Morgan in January, so I'm sure you've heard a lot of, of that this week. It's a smaller version at this point.

Simone Fishburn:

Can I follow up with a question? It sort of to you, but also to James, maybe also to you Carmine, which is, uh, you know, are people starting to time announcements yet around this conference? Is that a thing or, he's saying no, you can't see it, but he's saying no.

James Critchley:

Uh, I, I, don't think so yet. I mean, it's, it is because it's always a bit of a nice to have. But I, I mean, if you think about the cadence of deal flow, many of these deals have been in, in the works for a number of months. Um, I don't, I, I personally don't feel that it's specifically timed for this in the same way as the, as I agree with it for J.P. Morgan, there might be a, a nice to have announcement around that time.

Stephen Hansen:

Right. So, so the two key markers that this isn't yet as big as J.P. Morgan is the fact that you're not timing announcements for deals around it. And you're also not paying $500 for 30 minutes in a hotel lobby yet. So,

Simone Fishburn:

And, and you can get coffee, you can get coffee in a coffee shop.

Stephen Hansen:

You can get a coffee in the coffee shop. Yes. Until those change, maybe it's a, but it's still good. It's, I think, you know, for a European event, it's still, I mean, there were more receptions last night than I think I even realized were possible to attend in, in one night. So, well, Carmine, bring you into the conversation as well here. Can you just, you know, share with me a few thoughts about what, what you've been hearing this week?

Carmine Circelli:

I think the focus has been on large indications from a lot of angles. Spoken about that previously, James. Seeing investor focus particularly in the private role. And also I would probably say as a proud European, that maybe Europe is starting to scale. So we're seeing a number of companies that have scaled through to commercial sales, which usually is not a risk that a European company would take. But, you know, Verona Pharma, as an example of the U.K. founded company, started selling commercially, acquired for a very large sum of money. And I wonder if that's a sign of things to come, you know, staying private for longer and building real scale, and building companies that can be, you know, both impactful for patients. But very significant commercial outcomes for the ecosystem as well.

Simone Fishburn:

Obviously there's the GLP-1s. Are you talking beyond that? Can you, can you expand a little bit on, on the kind of indications you're talking about?

Carmine Circelli:

Uh, yeah. Um, so I think well beyond that, we've seen a number of things in INI, so yeah. Arthritis being a, a key indication. You know, you've got a number of other things in oncology as traditional areas and kidney disease coming to the fore as well. It's, there's a strong narrative over obesity. But, um, you know, for us as an investor, it's about supporting and investing in a diversified way across a number of indications that have large impacts rather than being overly concentrated in one area.

Simone Fishburn:

Yeah, I mean, one of the things that we've talked with people about, especially regarding something like the kidney, also cardiovascular, is maybe seeing that go the way of cancer in terms of precision medicine and segmenting that market. It may be a very big indication, but are they gonna end up segmenting the population. How are you, what are you seeing in terms of the opportunities coming through?

Carmine Circelli:

Yeah. Um, I'd probably risk talking about a few un unannounced deals, so I'm, I'm probably not.

Simone Fishburn:

You can do that.

Carmine Circelli:

Um, but, you know, I, I think you know, our own portfolio, we've got Purespring, which is a genomic approach, which is a lot more targeted, but you know, we're seeing biologics and small molecules really addressing the broader inflammatory pathways or the cellular mechanisms. There are lots of different companies looking at different stages of the disease, and I still think there'll be a number of companies addressing with mechanisms across the broader category of disease rather than being just solely focused on one or another patient subgroup. I know it's easier to get an approval, but come back to what is a value to pharma and they want a big, broad label.

Stephen Hansen:

Thanks for that Carmine. No. Super interesting stuff. so we're gonna take, a short break and we will be right back.

Alanna Farro:

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Stephen Hansen:

Welcome back to BioCentury's This Week. we are live from Victoria House in London. and so before we get started again, We kind of have, so we've done these live podcasts over the past year, as I mentioned. I think this is our seventh one, And we've kind of organically developed something of a tradition, I guess, uh, that we encourage our guests to participate in, audience members participate in if they want to. Uh, and it is basically to wear some colorful or interesting socks as part of the show, so the audience can see them. But, uh, for the podcast listeners, just sort of describe for you to give you a taste of kind of what we have. Uh, I don't think anyone can see mine 'cause I'm behind these tables. But I have on some T-Rex socks, which are my six year old's favorite dinosaur, and he very much encouraged me to buy, and so that was why I went with those. Maybe James, we can,

Simone Fishburn:

I think James wins.

Stephen Hansen:

Tell us about your socks.

James Critchley:

Well, I, I, I thought London Life Sciences Week wouldn't be the same without a pair of London socks, so,

Stephen Hansen:

Perfect.

James Critchley:

mine are, have some key landmarks. Mostly Big Ben, which is not to be relied upon for actual timekeeping, by the way.

Stephen Hansen:

Correct. Luciana, you went, you went with some spectacular shoes. You wanna tell us a bit about your shoes?

Luciana Griebel:

I, I decided to go rogue and do shoes instead of, uh, socks. I think the most terrifying moment of preparing for this podcast was when you said, I have to find socks to wear. Uh, so instead I decided to go with high heels, rainbow colored.

Stephen Hansen:

perfect

Luciana Griebel:

on a perfect, you know, gloomy afternoon. I thought, what's better?

Stephen Hansen:

Nailed it. Great. Carmine, you have some, some fun socks there? You wanna tell us about your socks?

Carmine Circelli:

Yeah, so Star Wars theme, uh, which is a bit odd, but I'll go with it anyway. Um, and they are Obi-Wan Kenobi. Main reason for wearing them is Obi-Wan's a, a coach and a teacher, and it's really a shout out to all of the CEOs, EDs, building teams and great companies and coaching and developing the next layer of talent and the future generations of the ecosystem.

Simone Fishburn:

Oh my God. You totally win.

Stephen Hansen:

Yeah, that was, that was not that. I didn't, I did not see that, that connection coming. But you did a very good job of tying that together. That was great. Simone, you wanted to, uh, you wanna tell us about your socks?

Simone Fishburn:

Well, I am flying the BioCentury's This Week flag with my socks. I'm wearing the socks, so Very good.

Luciana Griebel:

Are we all getting those often?

Simone Fishburn:

You actually are. Play, play your cards right, but you know.

Stephen Hansen:

It's supposed to be a surprise at the end.

Luciana Griebel:

Oh, sorry.

Stephen Hansen:

Holding those in reserve, but that's okay. That's okay. No, very good. Well, thanks guys. I appreciate everyone, uh, participating. It is, uh, it is kind of fun to do that now. Um, right. So let's get back to our discussion. You know, we've been kind of recapping the, uh, the vibe and the sort of the interesting tidbits from, from the London Life Sciences Week this far. I'd like to now kind of transition to more of a forward-looking conversation. So, actually Luciana was hoping we could start with you, if that's all right. I mean, so I know that kind of one of your specialist areas. is focused on dealmaking. Uh, I think in particular, you know, you were mentioning me a bit about sort of some of the creative sort of dealmaking that, that you've, been, uh, working with and seeing over, over the time. So can you just explain just a little bit how, how are companies kind of using kind of creative deal terms to de-risk some of these deals and, you know, still be able to get access to some of these really high quality products. Can you kind of walk us through what those look like?

Luciana Griebel:

Yeah, absolutely. I think we've really started to see a shift, and it's not just the very simple, straightforward M&A deals, and in particular at Morgan Lewis, working with our clients, trying to solve some of these problems and address the risks, with the transactions and make sure that the products get to the patient. So a large part of that has been moving away from a pure M&A structure and combining M&A with licensing. So There are a lot of licensing elements that get pulled into M&A deals. You know, earnouts have traditionally been used as a way to bridge the valuation gap, but now we're seeing other things develop. I dunno if you've seen it maybe in some of your deals, but we're seeing a lot of option deals as well. So in an option deal, you would have an upfront payment, and then you would pretty much negotiate the either asset purchase agreement or the share purchase agreement upfront, and then upon a trigger event further down the line, you would have the option to acquire either that asset or the company itself.

Stephen Hansen:

So is this, is this like a built to buy type of structure or is it,

Luciana Griebel:

It can be.

Stephen Hansen:

is it a modification of that?

Luciana Griebel:

It's, it's a modification of that. Um, so we, we've seen a, an example recently with a university spinout here in the U.K. That you know, we catered for from the very beginning. We nurtured them. We started with their Series A. And went, um, all the way to the exit, which was done through an option agreement. They were acquired by big pharma and it was a, a real success story for for U.K. companies. And particularly for university spinouts to see the whole progress. What's interesting with option structures, and I think a lot of people don't necessarily appreciate that early on, is when you enter into that type of agreement, you're trying to legislate for something that may happen years down the line, and the parties are in a relationship from the very beginning. So there will be some adjustments that the smaller companies will have to do in terms of compliance, in terms of. How they actually, interact with the buyer, earlier than, you know, at a stage of an integration. So,

Simone Fishburn:

So these U.K. companies, or are they from anywhere? Sorry. Sorry. The spinouts, are they from U.K.

Luciana Griebel:

Yes, yes.

Simone Fishburn:

institutions specifically? thinking about was a U.K. spinout, but it can be done anywhere with any company. Right.

Luciana Griebel:

It's a way to get funding in earlier because you would get some form of payment early on. And then develop that relationship. And if the data reads out, what everyone expects it to do, then you would,

Simone Fishburn:

And so who's sort of, is it the tech transfer office who's sort of driving this kind of flexible thinking or creative thinking on the deal structures. Is it you, are you coming into the room with that? And, and is it based still on?

Stephen Hansen:

You can say yes.

Luciana Griebel:

Of course.

Simone Fishburn:

I wanna ask you both. I wanna ask all of you like, where are we in terms of valuation expectations? Right, can we, can we get to that in a minute? But. You know, Luciana, maybe just answer the first bit in terms of who's driving it?

Luciana Griebel:

I, I think it's a combination. I don't think, uh, it, it's a structure that lawyers suggests that clients come and propose. So it's a, it's a known structure.

Simone Fishburn:

Mm-hmm.

Luciana Griebel:

Um, it doesn't involve any track-transfer. So unless there's some element of collaboration or something built into that, the structure itself would not involve any track-transfer would just be an initial investment option agreement. You get the right stage and then you acquire the asset of the company.

Simone Fishburn:

Can we go there now to valuation expectations? Have they reset? Where are we in that curve?

James Critchley:

Yeah, I mean, uh, I, I think, uh, I think of it really as public and, and private, just to describe it. So, I think on the, on the public side, we have seen uptick obviously in the number of deals. And we've seen a number of bigger deals and uh, you know, we heard lots of people, and lots of discussion around have the premium come down a little bit. So we are not seeing these 80, 90% biotech premiums as a whole. It maybe come down, we've seen deals in the 40 to 50%, kind of premium range. I think, uh, what we sometimes miss sometimes is that for these public company announcements, the share prices have actually traded up materially into the deal announcements. And it might be because, companies had better than expected launch of a product. Or it might be the, you know, the market's rewarding high quality late stage data sets, et cetera.

Stephen Hansen:

So like, like Cidara, I mean, I think that was a pretty interesting one where they had really positive data, and I think they did a follow on deal at like $44 per share. And then traded all the way up, you know, as to, I'm sure as the discussions were ongoing, traded up to about $105, I think it'd taken out for over $220.

James Critchley:

Yeah.

Simone Fishburn:

Right. And Stephen, isn't that the one where you sort of basically posed the question, like, did investors undervalue it or

Stephen Hansen:

Yeah,

Simone Fishburn:

did Merck over pay, kind of thing,

Stephen Hansen:

did Merck overpay, or did nobody really appreciate the value that they had post data, which was July? You know, and so,

Simone Fishburn:

You might wanna remind, um, the listeners, like how much that went for.

Stephen Hansen:

Yeah, it was a nine, I think it was

James Critchley:

$9 billion.

Stephen Hansen:

$9.2 billion I think in total.

James Critchley:

Yeah.

Stephen Hansen:

Merck's acquisition of Cidara. So, um, yeah.

James Critchley:

But it, um, I mean it has definitely fed into the decision making for a lot of these later stage deals because, you know, there's only so much more headroom you can have. In your models, we've also seen some CVRs coming back in, which, you know, helps with logistic.

Stephen Hansen:

I was just gonna ask, that was,

James Critchley:

That's been a feature for 2025.

Stephen Hansen:

I was wondering if that was sort of gonna be a more of a mainstay feature because that's, I was actually kind of surprised that that didn't feature in that Cidara deal as you would've maybe thought that it would be built in. But obviously we saw in the Metsera deal, we've seen it in several others.

James Critchley:

Yeah.

Stephen Hansen:

Is that, is that a pretty common expectation now that there's gonna be some level of. Trying to mitigate the risk?

James Critchley:

Um, yeah, I mean I think we've, it is definitely been a feature in a number of deals. Um, and it's been a feature in some of the deals actually where it didn't end up announcing with the CVR with CVR features as part of the negotiations. So, um, yeah, it's a way to, it's a way to sort of bridge that risk and, and, and value expectations.

Stephen Hansen:

Hmm.

James Critchley:

so yeah, it's a mechanism that you will often see when, when share price are, are running quite high.

Stephen Hansen:

Because, sorry, we're already going a little off piece here, but, just, stick with me. Because that was, I guess I always thought that CVRs initially kinda came in when there was maybe, higher concerns around sort of, you know, risk and things and like maybe wasn't as competitive. But again, so maybe going back to that Metsera example, I mean there were seven, eight sort of suitors, so it's not like that, I mean, that was a very competitive deal process yet you still ended up with the CVR.

James Critchley:

Yeah.

Stephen Hansen:

You know, a fairly sizable CVR aspect. I mean, I think it was two and a half billion dollars in the end. I mean, is it no longer, I mean, because I would've thought that in a really competitive bidding process, like getting rid of the CVR would be a way of sort of, you know, trying to entice, you know, a company to accept your bid. I mean, is that still the, the right way to think about it?

James Critchley:

Yeah, I mean, look, we, we've definitely seen examples of, of what you just described and, uh, and, and one deal that we worked on was exactly that, that situation where the CVR was proposed, uh, a $20 CVR was proposed and actually we, we counteroffered and said, drop the CVR, we bumped $2 and, and the deal got done. So yeah, look, I, I, I think, uh, I think it does feature. But ultimately it's a combination of, as you said, the composition dynamics within the process. The actual, you know, remaining sort of risk profile of, of the asset itself because we have seen some companies, um, have been acquired perhaps at points where I think everyone was thinking it might de-risk further, right. So there are key, obviously M&A catalyst as I call them, which is typically a data event or, or similar. Um, and we have seen some trade where folks have preempted and moved before, you know, a pivotal data set. And I think that's just indicative of the competitive market and a high strategic need.

Simone Fishburn:

Alright, well, you raised Metsera, there was the obvious popcorn value in watching that play out, and then we had Lundbeck. Are we gonna see more of that or is it just too often, in, in terms of, uh, oh, you thought the deal was done? I have a superior offer for you.

James Critchley:

Yeah, I mean, look, it, it is a very interesting point. Because we haven't been in a world where we've seen people interloping for quite a long time. And I guess with, Metsera, you know, Novo was in that process, allegedly to, to begin with, um,

Stephen Hansen:

Company one.

James Critchley:

And. Indeed. Um, yeah, look, I, I think it's essentially indicative of a competitive M&A market and as I said, the strategic need, and, desire for assets that fit within the core area of expertise of a company. And we've seen that with people acquiring assets that actually are almost, a, a mechanism to defend the core franchise within their business. So it just gets very competitive very quickly.

Stephen Hansen:

I not been prepared to be, have gotten so deep into the weeds on the legal definition of a superior company proposal as I have in the past month. Didn't realize I was gonna, go down that road. It's been a very interesting, uh, as you say, it's been a very competitive and it just feels like, I mean, is there firepower for this to continue? I mean, what, what, can you talk a bit about the supply and demands that's out there, James?

James Critchley:

Yeah. I mean, I, I think in general there is sufficient firepower. I mean, many of the companies can, have debt capacity into the 10 of billions. There are one or two that are at the other end of the spectrum. But in general, I think the balance sheet capacity remains. What's interesting is to think about funding the deals once they're done, depending on that profile. So P&L capacity in the R&D burn becomes a talking point as well.

Stephen Hansen:

Yeah.

Luciana Griebel:

And that's something that has actually come up in various conversations during this week about P&L capacity and what happens after they've acquired the company.

Carmine Circelli:

Yeah.

Stephen Hansen:

Carmine, I I, I did wanna ask you, 'cause I know that you've been, you've been working on some interesting stuff and we actually didn't get a chance to talk about this beforehand, so I'm hoping I'm not catching you out off guard too much here. But, uh, you know, we had talked a bit about some of the work you're doing around venture and some of the returns there, and I know that that's one of the bigger conversations that's going on this week, and especially in the U.K. around the initiative to try and get pension funds involved and try and get pension funds, more exposure to alternative investments such as venture. So can you talk a little bit about kind of what you're seeing there and maybe kind of how far we are along in that process? And please tell me that you have some visibility on actually getting pension fund money into some of these venture capital funds.

Carmine Circelli:

So, um, just to, to cover it off, actually, by way of background, we're both a large LP, which means we invest in fund managers. We've been doing that for a very long period of time, been doing it across sector. So the first point I, I wanna make is. In general, people perceive life sciences to be a high risk and fairly low return versus the sectors. And I can say that that's not necessarily true. You know, Bruce Booth's published it repeatedly. And we see that in our own dataset, we see good liquid returns over reasonable investment periods and strong IRRs. And that really feeds through to the argument that the industry needs to make to the institutional investors. Not that they should specifically invest just to invest, but much rather it's in their financial interests too, because of the way that ultimately the industry is productive for investors, has great patient benefit, so what better to do with your money than both have an impact on patients longer healthier lives and good returns for your savers. So it's about making that campaign. And in terms of what we will hopefully see over the next kind of period or window is that start to solidify. We're seeing a number of the major institutional investors building their own investment teams. Some of them with sector specific focuses. I'm not gonna call those out for obvious reasons, but it's available on the websites. And then for ourselves, yeah, it's publicly announced that we are working with the industry on the British Growth Partnership. And you know, hopefully there'll be more news on that soon.

Simone Fishburn:

Can I just follow up, a couple of things here. So on the pension fund reform, I was talking to somebody about this and obviously there's this argument that, you know, is brought out quite often and correctly that look at what's gone on in Australia, look at what's gone in Canada, look how well those pensions have done and look what you're doing. And you know what I hear is the pension sort of funds go. Yeah, yeah, yeah, I get that. But still, it seems a bit risky to me. so, you know, you can change the law, but are you gonna change the behaviors and the risk appetite?

Carmine Circelli:

I don't think we can change the law, unfortunately.

Simone Fishburn:

Well, you can't, but one can, the law can be changed, right.

Carmine Circelli:

I I, I, I'm not in a position to advocate any of the direction on that, but the, um, the point I suppose is there are an awful lot of other structural considerations that are specific to venture. So if we think about, first of all, day-to-day pricing, which is essential for pension funds, you've also got structural. How do you flow capital from savings into an illiquid asset class and back out, you know, the advent of LIFTS, which BBB of supported recently. So it's a 250 million investment alongside Phoenix Group, it's a very large institution, and that's now managed by Schroders as a LIFTS, essentially. So it's about seeding these new products and new channels to effectively allow the industry to have access in the U.S. That happened in 1978. The ERISA reforms were a kind of core piece of that. And for us in, in the U.K. and Europe, it's a template that ultimately we might have to follow in order to achieve what we want to achieve in terms of broader funding for Those structural pieces I think there's another thing about how engines are, ultimately, sold for one of a better phrase, how mandates are acquired. But you know I think these are pieces of the jigsaw that are starting to come together, and there's definitely a concerted effort. The people to work on this issue.

Simone Fishburn:

I wanna follow up on something you talked about with the perception of risk in biotech, and I don't think anybody is gonna pretend, you know, anything other than that. But one of the themes that's come up this weekend, just about every single conversation, of course is AI. Okay, and so we're talking about these equity markets I didn't raise before, but you know, when the AI bubble bursts, I think most people are saying when, not if, but when, what does that mean? And so there's this idea that, okay, everything's gonna get dragged down, but then there's this open question as to whether you then get this flight to biotech. Does biotech become the flight to safety as we saw in the, in the pandemic? And I'm just sort of wondering what you all think about that?

Stephen Hansen:

Yeah, what happens if it bursts? Does everybody sink or is biotech a an island of safety?

Simone Fishburn:

Because there's always patients, you know, there's always patients.

Stephen Hansen:

Albeit, albeit a high beta island of safety.

James Critchley:

No, no one, no one wonders through such difficult questions. Um, yeah, I mean very, very, very hard to predict. So I, I think we've probably already started to see that some of the Nasdaq, cooling, cooling off a bit and, and coming down as that AI sort of rhetoric cools, cools a little bit. Um, I mean, I, I think, it's selectively within biotech, there's almost been assets have continues to be rewarded quite well in the markets upon positive data sets. And that is fundamental and specific to biotech. And I very much hope, that that will will continue. But you know, naturally as markets come down, um, it just leads to a broader input to send broader sentiment.

Simone Fishburn:

Excellent work not answering the question there, James.

James Critchley:

That's, I'm giving, I'm giving, I'm giving, I'm giving the poli politicians answers a bit of a that they borrowed them down. So I, no, I, I, I, I think of the, uh, high quality biotechs with positive data sets are gonna continue to be well rewarded for it. The rest of it will just be a sentiment value, which may just see generally the markets come off with it.

Carmine Circelli:

So, kind of be a bit more direct, uh, hopefully, um, less encumbered. The first thing I would say is 80% of all biotech transactions are trade sales. Only about 20% are into the IPO range. So there's a natural insensitivity in the returns market on the basis of reliance on public pricing. There are some great public companies, I'm not gonna deny that, but it's not for the majority in terms of real cash to cash transactions. And then building on that, when we look through that broader data set and we see the liquidity profile coming back, it's stable over time. And it actually, when we cross correlated it is inversely correlated. So it almost directly opposes returns from all of this sectors. And the really strange thing is it is actually inversely correlated to public biotech. So you'll actually see strong returns even when public biotech is suffering from the private biotech market

Stephen Hansen:

For venture, for private, for private biotech?

Carmine Circelli:

For private venture biotech.

Luciana Griebel:

Yeah.

Carmine Circelli:

And we see that in our LP data, and.

Stephen Hansen:

That's a good note for anyone who's heavily overweight on AI at the moment. They need to swiftly switch into, uh, transitioning into private biotech to make sure they can capture those, uh turns on a downfall.

James Critchley:

I, I'll pull this out add one more, one more point, which is, you know, when, when we've seen, a cycle of, M&A and, and this, you know, to the extent that we have over the last number of months, there is gonna be a natural recycling of that money.

Simone Fishburn:

Right.

James Critchley:

Where, you know, sector specific funds and,

Stephen Hansen:

Right.

James Critchley:

PMs need to put that money.

Stephen Hansen:

There's a lot of specialist money that was, that was in those names

James Critchley:

Yeah.

Stephen Hansen:

that can then reinvest in, in their other names. So, yeah. Well, good. Well, um, Simone, I'm gonna come to you last, not that you last, but you just happen to be last

Simone Fishburn:

Keep going just

Stephen Hansen:

in this one.

Simone Fishburn:

Yeah. Illustrious, now what was it today?

Stephen Hansen:

Um, two things I would like you to give your perspective on kind of in a forward looking manner. So clinical trials and timelines and speed, those sorts of things. And then can we talk about the sustainability of the NewCo trend, the cross-border dealmaking trend. And whether you see that continuing into next year, and I will give you the choice to start with whichever one you want.

Simone Fishburn:

Yeah. I'm gonna take my editorial license and, and go for the second one first.

Stephen Hansen:

Got it.

Simone Fishburn:

This what we do, we, we get drafts from our writers and then we move them all around.

Stephen Hansen:

Gee.

Simone Fishburn:

Right, right. So, so, so what I'm gonna, yeah. I think in terms of the China NewCo model, so the other thing we haven't yet talked about is China. Which is extraordinary given for me, this is the year and everybody who listened to the podcast has heard this many times. This is the year that the rest of biotech woke up to China. But one of the things that you know, came out of like listening in our, in our China conference was. you talked about creative models, so in China, they came up with a NewCo model whereby when the capital markets were extremely constrained, biotech companies would out license assets to create new companies, NewCos in the west. Now, we all know that's not actually a new model that's been going on. It's been going on in tech forever. But there was this sort of wave of it. And I think what was particularly important was it was coming out of biotechs. It wasn't sort of coming out of academia and being planted elsewhere. And so there was this big wave of them. And now the question is, and you know whether that's going to continue. Obviously the capital markets have opened up a lot. Hong Kong market is,

Stephen Hansen:

Right. IPOs have opened up. We haven't. So I was looking at the data, just the, the updated data we had through last week, and we haven't seen a material move in terms of the number of venture dollars venture money that's being raised in China yet. So that's not moving, but that doesn't mean that it won't be moving. It feels like that's starting to come back as well.

Simone Fishburn:

Right. So there's certainly a feeling of less, of like, there's no place to go for money. Right. And so, you know, there is this, some people sort of think that the, the NewCo model was a wave and it'll sort of simmer down. But then there is another company organization that is actually really doubling down on this. They're raising a very big fund two funds specifically to fund NewCos in the West. And so it's a sort of bifurcated scene. We don't know which way it'll go. I'm not gonna predict which way it'll go, but I think that there are people who certainly see a lot of opportunities. Some of which may have a geopolitical angle to it, but a lot of opportunities in taking these China assets and then developing them in the west.

Stephen Hansen:

Yeah, I mean, I, I, I know I spoke to a couple companies, this week who, you know, specifically mentioned the fact that they were investing a lot of time and energy and making sure they had people on the ground there, people that, you know, spoke the language, you know, had local access and that was where they, they felt like, it was sort of the one last place in the world where you could potentially find a diamond in the rough and find something that is actually, you know, a real high value asset that you don't pay a high value price on. But you know, I I, I think there's probably gonna be a natural equilibrium that comes at some point, right? Cause as these asking prices go up, or if they ask for more equity or, you know, whatever the flavor of the, of the dealmaking is. There's probably gonna come a point to where there's some sort of equilibrium that you know, where then maybe pharmas or, or VCs say, well actually I can get something just as good from a struggling US public biotech or something like that. So,

Simone Fishburn:

So now we get to a bit of like, where does China biotech fit into the overall global growth

Stephen Hansen:

That's right.

Simone Fishburn:

of ecosystem. And sort of, I personally think that there's just gonna be continued assets coming outta China.

Stephen Hansen:

No, I, I agree. I'm not, I'm not saying that they're aren't. I, but, uh, you know, I guess I'm saying that I, I imagine there's sort of a crest to the wave at some point.

Simone Fishburn:

Of NewCos

James Critchley:

cans. Yeah. I, I, I, I think it'll continue to feed into the early stage R&D pipeline as, as you know, assets come out of China, and pharma companies develop them. Because lots of those assets that we're seeing, including the NewCo models, some are being developed through to sort of mid stage development, but typically they're brought in a, a relatively early, early stage. And then, you know, as we're seeing at the moment, the wave of M&A really has been more skewed towards the more mature late stage assets. And that's coming more from the, the standard, you know, US public market.

Simone Fishburn:

Alright, so lemme come to the exact opposite of that. So, a lot of the NewCos, um, depends on what you call late stage and early stage. And this is your second question, Stephen. A lot of the NewCos are coming with, with clinical data. Of course. A lot of companies in the West are still saying to me, oh, can you really trust that data and whatever. Remember you are comparing clinical data, early clinical data with preclinical data, so it is massively de-risked. Now, the, the real thing that I wanna talk about though is what I believe is going on this for a long time, South Korea, Australia, other regions of the world have really wanted to become a destination for clinical trials. And what's coming out of China is like everybody is waking up and going, oh, we really need to make that happen. In the U.K. we've got Lawrence Tallon, the new CEO of the U.K. regulator MhRA, and he has set a goal to, first of all, reverse the decline, whether decline is a increasing lag in clinical startup times. But I think they wanna be even more aggressive. And there's certainly a lot of effort going in here to enabling clinical trials startup times to be faster. And this, I think is what we at BioCentury are gonna be watching and gathering data on. Many countries now feeling that this is an area where they can compete, they can provide value, a lot of it. Patrick Vallance has talked about that, that's the Minister of Science here. Is about getting more patients, eligible patients into clinical trials. And so I think that that actually is sort of, China's basically raised the bar. They may continue to deliver on that, but they've raised the bar for all these other areas in the world to start saying, we need to enable clinical trials faster.

Stephen Hansen:

Yep, and everyone's trying play catch up.

Simone Fishburn:

Yeah. And, and I mean even FDA, I shouldn't say even, and FDA is, is, uh, recognizing that and, and talking about making it faster to get into the clinic. We'll see what goes on there. But I think it's a really important area because I think that just cutting down the dead time of dead translational research, which is going on. And preclinical models, some of them are good, but many of them just don't have predictive value, so really trying to solve that bottleneck I think is key. And you'll hear me say this over and over again, so you can keep tuning to the podcast to hear me say that

Stephen Hansen:

Wonderful. Well, thank you Simone, for the final word, a wonderful final word. That is all that we have time for, uh, this week. So I'd like to thank our new podcast On the Road sponsors, the British Business Bank, PJT Partners, and Morgan Lewis for their supports. Also, a huge thank you to our live audience, for joining us for this Special Edition of the BioCentury's This Week podcast, and thanks to all of our listeners for tuning in. I believe the BioCentury This Week podcast, uh, will be back On the Road next year at, the Life Sciences Week West, J.P. Morgan, I guess Annual, I don't know

Simone Fishburn:

Redo that bit that was rubbish.

Stephen Hansen:

They don't all work. podcast will be back On the Road next year at the J.P. Morgan Annual Conference in January. Thanks again for joining us. We'll see you next week. Alright we're done.

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