We are finishing off an extended JPM 2019 conference and reflecting on the unprecedented dynamic we have seen in the industry during this year’s event, outlining below a few selected items we thought are worthwhile sharing off the bat. We are available throughout for in-depth discussions of topics particularly relevant to our clients and how we can support you in capitalizing on these and other trends 2019 and beyond.

Transaction outlook

There has been ample on-site and aftermath discussions about expectations for deal activity 2019, breaking expectations down into deal types as well as sub sectors within Healthcare.

It is clear that cash balances are available for sizeable acquisitions around the table of large players. Bristol-Myers Squibb’s acquisition of Celgene for as much as $74 billion, and Eli Lilly’s relatively small mega-deal of acquiring Loxo Oncology for “just” $8 billion, could not be more substantive examples. As the year unfolds, targets will need to be “worth the while” for dealmakers and support teams to engage so we expect full acquisitions to require a certain minimum size. While analysts are exceeding each other with bets on who will be the next target, and who the acquiror, we focus on the opportunities such acquisitions bring during the integration (and divestment) phase that follows. It will be a very active 2019 in that regard, to say the least. Keeping up with the pace will be amongst the challenges for those who want to benefit.

In addition, we see imminently relevant ability of small and mid-sized companies to engage into inbound transactions, primarily for two reasons: consolidated companies can make for better acquisition targets themselves, and capital markets are likely to support M&A activity in addition to value generating R&D. The dilution coming from share based or equity financed acquisitions is an omnipresent topic for acquirers large and small, so why as a small firm not start now?

When it comes to licensing, some larger players have already in the past been reorganising (i.e. removing) their licensing departments, which speaks for itself on the relative importance of these types of arrangements in a world where there is enough capital available to deploy on outright acquisitions. However, we clearly see a continued thrive of well-funded strategic partnerships and development cooperations that provide both sides with valuable complementarities. It is not a new theme but continues to be highly relevant that an appropriate data set, which clearly substantiates potential benefits while helps quantify development risks, is a joker -or rather a prerequisite- at any stage of collaboration discussions with industry.

Therapeutic areas

Oncology remains the preeminent target market for new drug discoveries, clinical development, financing, and transactions. Within that arena, flagship products like Keytruda, Ibrance or Kymriah as well as Revlimid or Imbruvica each have and will continue to attract a series of combination or at least ancillary agents that will trigger a chess game of development strategies for the smaller players pursuing them. An emergence of highly sophisticated delivery solutions will complicate clinical reality further once approved, while in the interim providing for significant strategic prospects for any small player that could be successful in fielding its technology with one of the leaders.

CNS drug development having long been both a graveyard for attempts of curing Alzheimer’s and the likes, and a highly difficult area to develop products in overall, is back on the agendas for making what we think are now much more calculated bets on incremental improvements of patient lives. Not only have several large players focused their lenses on targets in the space, the biotech industry caters to it with compounds and platform technologies transitioning from ideas to development reality. Where one would have been a lone pioneer a few years back, be sure there now is competition. Sophisticated science paired with high scrutiny in developing those compounds where risks of failure have been specifically addressed, will separate successful candidates for industry partnership from those who keep trying.

Inflammation and immune modulation remains a core area of research and development interest with the prospect of clinical benefit across a number of indications. However, price point divergence more often than not dictates a development focus on oncology for players large and small, in our view leaving significant patient benefit on the table where potentially promising therapies in low-price indications are just never developed. We have discussed various strategies to optimize relative net present value of non-oncology vs oncology development opportunities, including examples of de-risking mechanisms like extended exclusivity protections, accelerated approval pathways, and adaptive trial designs.

Emerging platform businesses

Convergence of local care providers (esp. hospitals) with, and into, platform companies that provide an augmented set of healthcare services, maximizing throughput of their infrastructure and significantly improving margins results in significant, rapid emergence of new business development counterparties for big pharma, drug developing biotechs, and medtech companies.

In many instances, this includes the build-up of a “digital shopfront” which detaches, effectively, the service being delivered from the staff, people and, importantly, location of the deliverer. This opens tremendous opportunities for established players, all of which have been earmarked and foreseen for long but as we are approaching a new decade seem to finally come to life. Be ready!

Summary outlook

There is significant uncertainty in the market about the long-term macroeconomic outlook which has vast impact on industry’s view on the second half of the year, and beyond. Those who are fearful of what they think is a long overdue correction in the market will frontload activities into the first half of the year, to consolidate in the second. Those who do not agree with this sentiment have more time to act but will equally be looking to not fall behind on what is a rapidly advancing industry.

In summary, we cannot see anyone taking an extended break in 2019 and look forward to working with our clients as the year unfolds.

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