The M&A pool set to ac­cel­er­ate biotech in­no­va­tion

Q1 2024 saw a hand­ful of IPOs in the biotech sec­tor, and mount­ing ex­cite­ment over nov­el treat­ments. But there are less ap­par­ent trends in play that may im­pact the whole biotech ecosys­tem, in­clud­ing a shift in fo­cus by po­ten­tial buy­ers in phar­ma. RBC’s biotech in­vest­ment bank­ing team an­a­lyzes what re­cent deal ac­tiv­i­ty sig­nals for the sec­tor’s fu­ture on the Pathfind­ers in Bio­phar­ma pod­cast from RBC Cap­i­tal Mar­kets.


  • Ma­jor phar­ma play­ers are now look­ing to buy ear­li­er-stage biotechs in search of long-term val­ue.
  • Many biotechs are well placed for sale or IPO af­ter fo­cus­ing on ef­fi­cien­cy and de­liv­ery.
  • Val­u­a­tions are set­tling while in­no­va­tions are dri­ving mo­men­tum in ear­ly-stage com­pa­nies.
  • Col­lab­o­ra­tions be­tween big and mid-cap play­ers are cre­at­ing con­fi­dence for out­side in­vest­ment.

M&A: the gi­ants turn to long-term in­vest­ments

In 2023, big phar­ma com­pa­nies were pri­mar­i­ly con­cen­trat­ed on ac­quir­ing late-stage com­mer­cial as­sets in the biotech sec­tor. How­ev­er, a new trend is emerg­ing.

Rather than try­ing to fill rev­enue gaps, phar­ma gi­ants are look­ing to shore up their long-term in­no­va­tion pipelines, ob­serves Alex Lim, Man­ag­ing Di­rec­tor of Bio­phar­ma­ceu­ti­cals. He points to phar­ma com­pa­nies seek­ing ac­qui­si­tions in the obe­si­ty field, with the aim of catch­ing up with mar­ket lead­ers No­vo Nordisk and Eli Lil­ly us­ing dif­fer­ent mech­a­nisms and modal­i­ties.

“I think that bodes well for our clients who are look­ing for in­no­v­a­tive ways to ad­dress this re­al­ly  im­por­tant dis­ease area.”

Richard Hsieh, Man­ag­ing Di­rec­tor for Bio­phar­ma­ceu­ti­cals, agrees: “We might see a shift over the next cou­ple of years to­wards ear­li­er stage ac­qui­si­tions.”

Hsieh high­lights phar­ma’s step in­to plat­form ar­eas not pre­ex­ist­ing with­in port­fo­lios, such as Bris­tol My­er’s ac­qui­si­tion of Karuna Ther­a­peu­tics and its ex­per­i­men­tal schiz­o­phre­nia treat­ment, and Lil­ly’s en­try in­to ra­dio­phar­ma via Point Bio­phar­ma.

Tim­o­thy Chung, Di­rec­tor of Biotech In­vest­ment Bank­ing, ob­serves how more M&A ac­tiv­i­ty is cre­at­ing ex­cite­ment and paving the way for sus­tained in­ter­est from ma­jor phar­ma­ceu­ti­cal com­pa­nies to trans­act. This ben­e­fits in­vestors by en­hanc­ing their re­turn on cap­i­tal and fa­cil­i­tat­ing rein­vest­ment with­in the space, bol­ster­ing the over­all strength of the biotech mar­ket.

Fi­nan­cial dis­ci­pline tees up po­ten­tial IPOs

The first quar­ter of 2024 has seen a hand­ful of biotech IPOs. Chung in­ter­prets this trend as an op­por­tu­ni­ty for com­pa­nies to ex­tend their cash run­ways: “Pri­vate com­pa­nies are able to top up the bal­ance sheet from pri­or years when they couldn’t ex­tend run­ways.”

Chung an­tic­i­pates that there could be 30 to 40 IPOs this year, with the U.S. elec­tion com­press­ing most en­trance ac­tiv­i­ty in­to the first nine months.

Af­ter a chal­leng­ing cou­ple of years, fi­nan­cial dis­ci­pline and good plan­ning have paid off for biotech com­pa­nies. “It’s been re­al­ly im­pres­sive to see the whole in­dus­try fo­cus and max­i­mize their abil­i­ty to stretch every dol­lar. Be­cause they’re de­liv­er­ing on im­por­tant mile­stones, they’re go­ing to have the abil­i­ty to raise mon­ey and look at the IPO mar­kets,” says Lim.

Chung al­so an­tic­i­pates the re­turn of dual-track IPO/M&A process­es, as com­pa­nies con­sid­er these op­tions in par­al­lel: “Some­times, the of­fer from big phar­ma is too good to pass up, and man­age­ment teams end up sell­ing their com­pa­ny, and for­feit­ing the dream of run­ning a pub­lic biotech com­pa­ny.”

Val­u­a­tions im­prove, mo­men­tum builds

There are al­so signs that the biotech val­u­a­tion gap of re­cent years is start­ing to close. Hsieh notes that the S&P Biotech In­dex (XBI) re­cent­ly hit a two-year high. “Pri­vate com­pa­ny val­u­a­tions are still re-rat­ing, as pub­lic mar­kets are set­tling,” he says. “We’re op­ti­mistic that val­u­a­tions will con­tin­ue to im­prove over the course of ‘24.”

Chung sees con­tin­ued ac­tiv­i­ty in the au­toim­mune sec­tor, dri­ven by al­lo­genic CAR-T and T cell en­gagers.

An­ti­body-drug con­ju­gates are al­so cre­at­ing ex­cite­ment: “Every­body wants to have an ADC pro­gram. These de­vel­op­ments are help­ing build mo­men­tum in ear­ly-stage com­pa­nies,” he says.

“Every­body wants to have an ADC pro­gram. These de­vel­op­ments are help­ing build mo­men­tum in ear­ly-stage com­pa­nies.” – TIM­O­THY CHUNG, DI­REC­TOR OF BIOTECH IN­VEST­MENT BANK­ING

Part­ner­ships in­spire in­vestors to pitch in

Col­lab­o­ra­tions re­main pop­u­lar be­cause they of­fer a cost-ef­fec­tive means for com­pa­nies to fos­ter in­no­va­tion.

Mid-cap biotechs of­ten look to larg­er part­ners to gain the cap­i­tal re­quired to run big tri­als. “They need these part­ner­ships with large phar­ma, and large phar­ma is cer­tain­ly look­ing to ex­pand its own pipelines on the ear­li­er side,” re­marks Hsieh.

This type of deal has a knock-on ef­fect for fur­ther in­vest­ment, says Lim, pro­vid­ing the con­fi­dence in­vestors need. “Big phar­ma step­ping in with part­ner­ships or in­vest­ments in com­pa­nies in turn pro­vides an op­por­tu­ni­ty for in­vestors to fol­low suit,” he ex­plains.

M&A cash set to ac­cel­er­ate in­no­va­tion

Lim puts the re­turn of cap­i­tal of M&A ex­e­cut­ed in the sec­tor over the past year at around $30 bil­lion. “That’s go­ing to get re­cy­cled back in­to the mar­ket. I think it’s a re­al ac­cel­er­ant to what is hap­pen­ing in our sec­tor,” he says.

Chung agrees: “The more mon­ey that in­vestors have re­de­ploy in the space, the more shots for com­pa­nies to po­ten­tial­ly come out with best-in-class drugs.”

Over­all, RBC’s in­vest­ment bank­ing team ex­pects a steady in­flux of cap­i­tal in­to the sec­tor over the next year. Hsieh con­cludes: “We’re ex­cit­ed to see all the clin­i­cal de­vel­op­ments com­pa­nies are mak­ing. I think 2024 bodes ex­treme­ly well for biotech.”

Gain per­spec­tives from the cut­ting edge of biotech to help you lead to­day and de­fine to­mor­row. Ex­plore RBC’s Pathfind­ers in Bio­phar­ma se­ries.


Timothy Chung

Director of Biotech Investment Banking, RBC Capital Markets