Overview
In April, McDermott was pleased to once again host our annual European Health & Life Sciences Symposium in Paris. Welcoming a crowd of more than 300 innovators, investors, business leaders and advisers from across the industry, we took the opportunity to share insights and capture the views of professionals on the latest developments impacting our markets.
With a packed agenda, there was much discussion about the fast-changing macro and geopolitical backdrop, which continues to impact dealmaking. Given the uncertainty, the primary focus of investors today is on top-line growth and late-stage companies that are closer to value generation.
While in the past there was an almost exclusive appetite for oncology innovations, today investors are hungry for a broader range of advances across infectious diseases, autoimmune disorders and GLP-1 medications used to treat obesity and diabetes.
Emmanuelle Trombe, partner and co-head of the Firm’s Life Sciences practice, says: “With big pharma facing a patent cliff, acquirers are looking for targets to fill their pipelines and biotech companies are being directed to prioritise identifying breakthrough drugs that will fit those schedules. There is a lot of focus on growth right now.”
Drug developers were cautioned to remain focused on meeting patient needs first and foremost, however, because big pharma trends can change it is only by demonstrating conviction and maximising value creation that long-term success can be realised.
In Depth
A Challenging Backdrop
There are several challenges set to impact life sciences transactions through 2025, with uncertainty about US trade policy and the threat of tariffs shifting both dealmaking and financing dynamics. Acquirers are looking to share risk as well as upside and are keen on more structuring in transactions to bridge valuation gaps.
We are seeing more creativity in deal structures, whether that involves combining debt and equity financing, embracing partnerships and joint ventures, or including commercial licensing arrangements, royalty financing or take-out optionality in deals. Many venture capital funders in the US are building royalty financing capabilities and are reluctant to take binary risk on investments.
With the US federal government scaling back staffing at the Food and Drug Administration, boards and investors are expecting delays to drug approvals. That could lead to more clinical trials being conducted in Europe as a means to spread risk, while cuts to US university programmes could further push innovation into Europe.
It has also become harder for US biotech companies to access capital in 2025, and we may see more partnering deals between US and European companies for late-stage transaction and commercial or distribution deals. There are also signs that US biotech investors are increasingly open to investing in European deals, with a Nasdaq listing no longer a firm requirement.
European biotechs looking at exit strategies were advised to tap into US capital early by building resources on the ground. Treating investors well to build trust should also be a priority, as well as embracing a four-track strategy by fully preparing for an exit to big pharma, an IPO, an additional round of financing or a licensing deal.
In a difficult landscape for transactions, the key takeaway for biotechs was that the current market requires a long-term approach: be consistent with drug development in order to build value, pay close attention to the cash runway and build optionality around routes to exit.
Innovations in Financing
Financing has been challenging in the biotech space for some time now, with elevated interest rates, geopolitical uncertainty, a tough fundraising environment for venture capital and a difficult capital markets backdrop. The symbiotic relationship between biotech and big pharma means deals are still happening, however, and top performers continue to manage to obtain financing.
From the lender perspective, higher rates mean better returns so it is a good time for both fundraising and deployment. Debt providers with depth and scale see a good opportunity to provide flexible capital to liquidity-starved businesses. Still, lending in such an uncertain climate brings its own challenges, as do portfolios of companies dealing with their own ups and downs.
Innovative financing models are driving advancements in health and life sciences, and these advancements, in turn, are reshaping financial strategies. Finance providers are structuring investments with a view to driving value creation for both sides, with co-investments alongside either venture capital or strategic players being embraced as a derisking tool. Often, the struggle is not in finding opportunities to fund, but in building syndicates alongside like-minded investors.
Finance providers today may be willing to tolerate higher valuations and more financial risk in return for stronger alignment. They are looking for strong management teams and best-in-class technology, with a particular appetite for innovators or managers that can demonstrate the ability to persevere in the face of market challenges.
Again, biotech companies seeking capital were advised to be creative where access to capital is challenging and work to build trust with financing partners. Many lenders have been willing to provide follow-on capital to businesses facing either equity or cashflow pressures, either by injecting more funding or paying interest in kind for a period, but there are a lot of bespoke financing structures being employed.
Aymen Mahmoud, partner and head of the European finance practice, says: “The biggest piece of advice we heard for companies was to have a specific plan, anticipate inflection points and ensure they have sufficient runway to get there. Leaders need to be ready to pivot and must demonstrate grit and determination in order to leverage financing opportunities.”
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