Authors: Thomas Califano, Tony Feuerstein, Carlton Fleming, Geoff Levin, Frank Rahmani, Adriana Tibbitts, Jon Zucker, and Ameneh Bordi
Life sciences companies and healthcare providers are therefore increasingly being forced to think about alternative liquidity options. Given that more life sciences companies than ever need to raise capital, we expect 2023 to usher in a new era in alternative financing solutions. Over the coming year, life sciences companies are likely to be planning for negative events, entering into partnerships and collaborations as a way to fund promising therapies and patient care. Some will be restructuring.
Smaller and midsize biopharmaceutical and medtech companies are likely to participate in a flurry of strategic partnering and licensing deals, and even in acquisitions. These companies should expect greater scrutiny from investors on how capital is allocated, with a focus on pipeline optimization and value creation. In this sector, we anticipate increased interest from private equity investors and a rise in debt financing, in addition to a growth in royalty financings. Historically, royalty financings were reserved for late-stage and commercial assets, but they are now emerging as a solid option for development-stage assets.
Pharmaceutical companies and U.S. healthcare providers will be facing the challenges of rising interest rates, wage and price inflation, and staffing shortages. These factors are likely to generate a disconnect between the valuations of sellers and buyers. Those looking to complete transactions in 2023 will need to be creative in the way in which they structure transactions, for example by using joint ventures and partnerships to mitigate reliance on debt financing. However, those with cash to spare will be able to take advantage of the low prices that are expected to result from the current economic situation, with significant opportunities likely to be available in the sector.
Smaller to midsize technology-based life sciences companies are already showing an increased focus on licensing and collaboration activity as a way to raise non-dilutive development funding for prioritized assets. Co-development and co-commercialization deals are likely to remain an attractive option for companies that desire to retain some rights to an asset, but do not have the funds to develop and commercialize that asset on their own.
During 2023, we also expect to see continued interest in territory-specific out-licenses. Out-licenses to greater China rights will continue to be popular, as these deals can carry a significant upfront payment and do not usually jeopardize a company’s ability to sell itself at a later date. Indeed, M&A are increasingly on the table as an option as investors seek liquidity. In 2023, we are likely to see life sciences companies considering M&A transactions earlier than they might usually have done.
Alas, the sector is unlikely to weather the current economic turmoil unscathed, and we are likely to see some restructurings among life sciences companies, particularly those that have taken on debt at earlier stages, as has become common in recent years. But in distress there is opportunity. Restructuring strategies can create significant value through tools that allow for the separation of valuable products, businesses, technologies, and patient care facilities from bad balance sheets. They can also prevent liabilities related to a particular product or business from inhibiting a company’s growth, and from affecting other assets and potential M&A deals.
Carlton Fleming, Geoff Levin, and Frank Rahmani explain why biotechs should remain open but cautious as new financing alternatives become available. They also consider why, in the current environment, it is critical to understand the true cost of capital.
Adriana Tibbitts explains why, in the current market, there is likely to be an increased focus on licensing and collaboration activity, an attractive option for tech companies that desire to retain some rights to an asset but do not have the funds to develop it on their own.
Tony Feuerstein and Jon Zucker consider how healthcare providers facing liquidity issues in 2023 and looking to complete transactions will need to be creative.
Thomas Califano and Ameneh Bordi look at the restructuring tools through which valuable technologies and products can be freed from the weight of claims and debt and explain how life sciences companies can separate good technologies from bad balance sheets.