At the start of 2024, the biopharmaceutical sector is experiencing a surge of optimistic anticipation, buoyed by the encouraging outlook shared at the recent J.P. Morgan healthcare conference in San Francisco. Should the conference serve as a forecast for the year ahead, marked by its energetic gatherings, packed corridors, and lavish accommodations, then the industry can expect a more flourishing period compared to previous years. The necessity for liquidity events and successful exits is keen for investors aiming to capitalize on their financial ventures, and such occurrences are beginning to unfold. A lineup of companies is eagerly anticipating their initial public offerings, ready for the trading bell to signal the start. This influx is set to attract a wider array of private investors and partners, which, in turn, promises an increase in available capital for the next wave of enterprises.

In the aftermath of a tumultuous 2023, which saw a significant downturn in biotech/pharma stocks reaching five-year lows in autumn, the sector witnessed a robust upward trend in the closing weeks of the year. This rally was fueled by several high-profile merger deals and a growing sentiment that the broader economic factors were starting to align favorably for the biotech industry. In the preceding month, Bristol Myers Squibb made headlines with two major acquisitions: a USD 4 billion purchase of RayzeBio and a massive USD 14 billion deal for Karuna Therapeutics. Concurrently, AbbVie made waves with its own set of acquisitions, securing Cerevel Therapeutics for approximately USD 9 billion and ImmunoGen for USD 10.1 billion. On a day dubbed ‘Merger Monday,’ Merck & Co. joined the fray with its USD 680 million takeover of Harpoon Therapeutics. Not to be outdone, Johnson & Johnson entered the scene with a USD 2 billion agreement to acquire Ambrx, gaining access to Ambrx’s promising antibody drug conjugate (ADC) research and ARX517, which is currently in phase 1/2 trials for advanced prostate cancer. Novartis made a strategic move by acquiring the autoimmune-focused spin-off from Merck KGaA, Calypso, for an initial USD 250 million, with the potential for an additional USD 175 million in milestone payments. Adding to the week’s string of deals, GSK secured respiratory specialist Aiolos Bio for an upfront payment of USD 1 billion and future milestone payments of USD 400 million. This acquisition positions GSK to advance Aiolos’ primary candidate, AIO-001, a phase 2-ready monoclonal antibody, with intentions to broaden its application to address chronic rhinosinusitis with nasal polyps.

There was an unmistakable energy that permeated the atmosphere, a sentiment echoed by many, suggesting that the challenging times might be receding, thanks to the optimistic deal-making in November and December of 2023 within the sector. The vigorous end-of-year mergers and acquisitions (M&A) dynamism has reignited enthusiasm in the field. Personally, I’m enthused about the current vibrancy and the innovative strides being made in the industry, despite the previous year’s market hurdles and the continued struggles faced by nascent life science firms as they strive to secure funding, seeking various strategic paths to prolong their financial viability, or in some cases, shuttering operations. Nevertheless, departing from JPM 2024, I carry with me a sense of optimism, a belief that brighter days are likely on the horizon.


Walk Away Themes

There are several themes worth highlighting related to sustainability, deal flow and M&A, and overall venture funding.



It seems that for the first time after a considerable period, the market conditions have taken a positive turn. There now appears to be a clear trajectory towards an extended market revival. The widely monitored XBI biotech stock index, which had seen a decline of 23 percent, has recovered to an eight percent increase. The index climbed past the USD 90 mark per share, reaching its peak since February 2023, and the S&P 500 concluded the year with a robust 24 percent gain. This uptick is largely attributed to the Federal Reserve’s policy to maintain stable interest rates, coupled with indications that a series of rate reductions might be on the table for 2024.

Concurrently, a flurry of acquisition announcements by major pharmaceutical companies has significantly contributed to this change in market sentiment. As the financial environment becomes more favorable, biotech stocks are rebounding to levels considered standard in historical terms. Should the Federal Reserve implement the anticipated rate cuts this year, the lowering of capital costs could ease the fundraising process for biotech companies, which is particularly vital for those in early or mid-stage development of their drugs. Additionally, lower interest rates often heighten risk appetite, tempting investors to venture into biotech stocks in pursuit of potentially higher returns. Attracting a diverse investor base, including generalist investors who typically have a strong preference for tech giants like Apple, Microsoft, Alphabet, and Amazon, may be crucial in driving a sustained market upswing.


Deal Flow

Anticipations are set for big pharmaceutical companies to continue their trend of acquiring smaller biotech firms to fuel their long-term expansion. The life sciences field, particularly among up-and-coming companies, is buzzing with breakthroughs. In the previous year, the Food and Drug Administration (FDA) gave the green light to 55 new drugs, the highest count since 2018, marking milestones such as the approval of the first CRISPR-based therapy.

As the new year begins, the sentiment around M&A is typically upbeat, often serving as an indicator for the sector’s projections. Major pharmaceutical and large-cap biotech entities possess significant cash reserves, which they are poised to deploy for both immediate and future growth. Since the potential of internal research and development has its limits, these companies are increasingly looking to acquire external innovation, particularly from smaller and medium-sized biotechs. The flurry of M&A activity announced at the start of January breeds hope that 2024 might pave a new path. However, it is yet to be seen if this activity will translate into the substantial morale uplift that the industry is yearning for, given the existing challenges.

Within the M&A landscape, the demeanor of strategic buyers is one of cautious optimism, navigating through the complexities of the current antitrust regulatory framework. Firms like GSK, Novartis, and Lilly have signaled a clear interest in external innovation to drive their deal-making strategies. Eli Lilly’s CEO, David Ricks, emphasized that the cost attached to potential deals is less of a deterrent than before, highlighting Lilly’s readiness to proceed with acquisitions that offer valuable platforms or pipelines. Ricks elaborated on the philosophy that acquisitions are not just about assets, but also about integrating diverse teams, methodologies, and innovative approaches to drug creation, thus expanding R&D capabilities through collaborative intelligence.

The impact of a recent Federal Trade Commission (FTC) ruling in late 2023, which obstructed a unique financing arrangement between Sanofi and the startup Maze Therapeutics for a Pompe disease treatment, has become a topic of concern. This decision is noteworthy as it deviates from the usual practice where companies like Sanofi would typically license rather than purchase a drug candidate from a startup. Given the downturn in investment funding, such licensing agreements have become a vital financing strategy for many biotechs. This development could potentially alter how smaller startups and big pharma negotiate and structure their deals, potentially influencing the terms for concluding agreements.


Venture Funding / Public Markets

The abundance of venture capital and private equity funds remains, with a robust pipeline for sell-side investment opportunities. The real task for 2024 lies in pinpointing the appropriate investments in companies that boast significant technologies and products, and in matching the pricing expectations of buyers and sellers as market valuations undergo adjustments. Given the tough capital market conditions of the past year and a half, a variety of strategies will be necessary to maintain business operations. Debt financing and other non-traditional capital avenues are gaining traction. It is likely that some companies will fold, which, as mentioned in my JPM 2023 analysis, is an expected part of the cycle.

The venture capital landscape is anticipated to face difficulties in the first half of 2024, still dealing with the aftermath of previous excesses. The venture sphere saw considerable upheaval in 2023, grappling with a difficult fundraising climate, the collapse of Silicon Valley Bank, and a restrained IPO and M&A exit market. A number of startups have adapted by reducing their cash burn and seeking bridge financing or other interim financial solutions. The advised approach and the expectation that most startups will continue in this vein remains unchanged.

The increase in down rounds for 2023 compared to the previous year indicates a recalibration of valuations, particularly for mature companies, albeit amidst fewer deals. Seed to Series A funding activities and valuations have, however, remained fairly constant. Moving forward, it is expected that most venture-backed startups will still require capital in 2024. Unless there’s a significant change in market mood or IPO activity, many will likely confront the reality of accepting lower valuations in new funding rounds, entering M&A dialogues, considering strategic alternatives, or in the worst case, shutting down—a trend that has already seen an uptick, with the number of startups folding doubling in 2023 compared to 2022.

In the face of considerable innovation and significant investment funds available, venture capitals are cautious with further investments as the market valuation finds its level and many portfolios are already highly exposed. For companies bracing for the year ahead, it’s advisable to set realistic expectations with your board, anticipating that fundraising could span over 12 months due to a deluge of choices for investors. Companies should articulate a clear strategy regarding the involvement of existing versus potential new investors. From an investment perspective, the focus is on quality assets. The mantra ‘survive to 2025’ is likely to be a guiding principle for many.

JP Morgan suggests that a gradual reopening of IPO markets in 2024 could pave the way for a normalized IPO landscape by late 2024 into 2025. Although recent IPOs have fared better than those in 2021, the calibre of companies entering the market has evolved. The IPO market is now more receptive to businesses with substantial revenue, sustainable models, profitability, and solid clinical outcomes. The initial months of the year could be pivotal for mid- to large-cap companies that are robust, scalable, and nearing profitability to gauge the market. Companies aiming for an IPO should focus on delivering on key performance indicators and fostering relationships with institutional investors.

Lastly, the Federal Reserve’s shift towards a more accommodating policy stance in December 2023 is significant for investors, hinting at potential interest rate stabilization. According to JP Morgan’s advice, companies would do well to avoid IPOs around the November presidential elections, which narrows the window for market entries in 2024.


Artificial Intelligence

The significance of Artificial Intelligence (AI) in healthcare is escalating. In the previous year, Nvidia took the stage at the tail end of the conference, by which time many investors had already departed for extended weekends. In a shift of schedule, this year, the leading AI semiconductor company secured a prime spot to present on Monday morning, ensuring its prominence at the outset of the event.

Alphabet’s Isomorphic has inked two notable licensing agreements with Eli Lilly and Novartis, with the agreements collectively valued at close to USD 3 billion in potential earnings, albeit with modest initial payments. These two pharmaceutical giants will be leveraging the capabilities of Google DeepMind’s AlphaFold AI technology, which underpins Isomorphic’s platform.

Despite the eagerness to lead in harnessing this cutting-edge technology, there’s an acknowledgment that there is much to ascertain regarding its practical value and its ability to revolutionize existing business frameworks, particularly within the biopharmaceutical industry.


Final Thoughts

The 2024 J.P. Morgan Healthcare Conference in San Francisco conveyed a mood of cautious optimism in the biopharmaceutical industry. Key points included:

  1. Market Conditions: The end of 2023 witnessed a bullish trend with high-dollar mergers, indicating a favorable shift in biotech’s direction.
  2. M&A Outlook: There’s mixed sentiment about M&A prospects due to valuation gaps and geopolitical uncertainties, though recent deals show promising signs.
  3. Fundraising Challenges: Despite positive trends, raising capital remains a challenge for emerging life sciences companies.
  4. Strategic Acquisitions: Big Pharma companies are actively seeking acquisitions to foster growth, with several significant deals announced.
  5. Venture Capital Trends: Venture funding dynamics are evolving, with an emphasis on identifying quality investments and aligning valuations.
  6. Future Expectations: The conference hinted at a potentially brighter future, with a focus on sustainable growth, innovation, and adapting to market changes.



David H. Crean, Ph.D., is Managing Partner for Cardiff Advisory LLC, an M&A investment banking strategic advisory firm focused on the Life Sciences and Healthcare sectors. This article is provided for informational purposes only and does not constitute an offer, invitation, or recommendation to buy, sell, subscribe for or issue any securities.

The principals of Cardiff Advisory LLC are registered representatives of BA Securities, LLC Member FINRA SIPC, located at Four Tower Bridge, 200 Barr Harbor Drive, Suite 400 W. Conshohocken, PA 19428. Cardiff Advisory LLC and BA Securities, LLC are unaffiliated entities. All investment banking services and securities are offered through BA Securities, LLC, Member FINRA SIPC.