The J.P. Morgan Healthcare Conference is arguably the most important annual event for many in the drugmaking industry, offering companies both large and small a venue to talk strategy, stoke investor interest and lay the groundwork for future deals.
Yet, the overall tone of this year’s conference, which wrapped up last week and was the first to be in-person since the start of the pandemic, was “muted,” according to a small group of biotechnology executives who were in attendance.
Compared to some recent years in which the conference kicked off with multibillion-dollar acquisitions, this latest installment had “no announcements of any consequence,” said Jeremy Levin, CEO of New York-based Ovid Therapeutics. “It was all small ball. There were no home runs,” he said Wednesday, during a panel discussion hosted by BioPharma Dive that focused on the outlook for biotech in 2023.
To Greg Verdine, CEO of LifeMine Therapeutics and FogPharma, the buzzy excitement usually felt during JPM was, this time, dampened both by inclement weather and a “general feeling of malaise and uncertainty about where things are going” in biotech. Jeff Jonas, the former head of Sage Therapeutics and the current CEO of ABio-X, added that the gloom was especially noticeable “on the financing front,” as “people really just don't have a great idea about what things are going to look like a year from now.”
It’s possible that biotech and pharmaceutical companies will face even more uncertainty in the coming months, as they contend with more cautious venture capital backers, a public market that’s turned cold on the life sciences, and new legislation that gives the government unprecedented influence over drug pricing.
Levin, Verdine and Jonas each acknowledged the challenges that lay ahead. But they also argued turbulent times can bring positive changes to the industry, as they’ve done in the past.
“We’re in a really great period of innovation,” Jonas said. “So I have a lot of faith … that this is just another cycle that we have to manage through.”
An end to the down market?
The XBI, a closely followed index of biotech stocks, was in free fall over much of the last two years, taking with it tens of billions of dollars in market value for drug developers.
The decline also made going public — a key stepping stone and vital source of funding for private biotechs — much more difficult, as evidenced by the recent dearth in initial public offerings. Twenty-two biotech IPOs happened last year, a number that is less than half the totals from 2018, 2019 and 2020, and far below the record 104 seen in 2021.
The XBI settled at a low point last June, and in the months since has slowly ticked back up. But how long the overall downturn will last still isn’t clear.
“There’s probably a reasonable bottom that’s formed already,” Verdine said. “But I think any prudent company would plan that this is going to take a couple of years to work its way through the system, and the ramp back upward is going to be shallow.”
For dozens of biotechs so far, planning for the future has involved revising research priorities or laying off staff. One example is Ovid, which last March announced organizational changes meant to cut costs and equip the company with enough cash to operate into at least 2025. Among the changes was a 20% reduction in headcount.
“Biotech does this. You go through these terrible cycles,” Levin said. “I think what we’re experiencing now is the aftershock of the party that went on for the last three years, where everything went up. It didn’t matter what you did, it went up so long as you were new, exciting and great.”
A down market, while challenging, can also push companies to do their best work, according to the executives who spoke Wednesday.
“We've seen through other cycles a disinclination to develop ‘me-toos’ and instead focus on real innovation,” said Jonas, using an industry term used for drugs that are very similar to what’s already on the market.
Levin noted, too, how many of industry’s most prolific biotechs, from Genentech to Regeneron to Alnylam Pharmaceuticals, weren’t immune to broader economic struggles.
“People forget companies that look successful today were real dogs at some stage, because of the market,” he said.
Where are the deals?
Alongside IPOs, mergers and acquisition activity in biotech was more halting than it has been in previous years.
Some analysts and industry followers expect that to change in 2023, predicting deals to increase in size and quantity. Already, there have been six M&A transactions worth $50 million or more, including Sun Pharma’s planned purchase of Concert Pharmaceuticals for $576 million, which was announced Thursday.
Yet, with many biotech stocks still cheaper now than they were before, some wonder why deal levels haven’t been higher.
"The pharmaceutical industry does not appear to be taking major advantage of the depressed market,” Levin said. “I'm not sure what that's about. Either they don't see value, they haven't got a strategy, or they're just choosing to delay later into the year."
One reason for that, according to Jonas, may be the current perception of biotech among potential buyers or investors.
“There is a sense that biotech may be almost on sale in the U.S.,” he said, “because of the reluctance to deploy capital or the preference for later-stage programs and things of that nature.”
Both Jonas and Levin also argue that larger, deep-pocketed companies might not feel as much pressure to put their money toward M&A as they have previously.
The idea of cash burning a hole in their pockets “doesn't exist,” Levin said, because leaders at these firms can just as easily benefit from stock buybacks. “A very hard question of these large companies will be: Who’s buying back their stock, rather than seeking innovation? Because that tells you a lot about the company's psychology and philosophy and strategy.”
How will new legislation affect biotech?
Last summer, President Joe Biden signed into law what’s poised to be one of the most influential pieces of legislation ever related to drug pricing and development.
The wide-ranging Inflation Reduction Act, or IRA, gives Medicare, the government insurance program for people aged 65 and older, the ability to negotiate pricing for a select group of high-selling medicines that lack competition.
Notably, the parameters of those negotiations differ depending on the medicines. Medicare can target “small molecule” drugs, which, historically, have been the cornerstone of pharmaceutical businesses, nine years after market approval. Large molecule drugs, meanwhile, can go 13 years before Medicare gets to negotiate prices.
The IRA’s passing set off alarm bells throughout the biopharma industry, which claims the legislation will stifle the development of new therapies — particularly those involving small molecules. The powerful trade group PhRMA has called the IRA an “attack” on medical innovation.
“It's an irony of this field that just at the time when small molecules are really breaking out of their mold and doing amazing things, that there's this perverse incentive being created to do biologics,” Verdine said.
“Uncertainty never benefits innovation or investment,” Jonas said.
The IRA’s impact on the industry won’t be fully understood for years. Already, though, Levin says he’s noticed biopharma executives becoming more energized and engaged politically.
“I think there's momentum,” he said. “I've seen lots of CEOs who previously haven’t spent one minute talking to a political person now saying, ‘Hey, wait a second, you guys are affecting my business. I'm on you.’”
Editor’s note: BioPharma Dive hosted the panel discussion live on Jan. 18 from 2 pm to 3 pm ET. You can register to watch a replay here.