Making the most of a better climate – biotech M&A in 2024

The correction that followed was dramatic – as reported by the London Stock Exchange, the $2.9tn deals that completed in 2023 reflected a significant reduction of 17% against 2022 and huge reduction of almost 50% against their peak in 2021.

Notably, the biotech industry showed great resilience in the face of this bear market – global deal values increased by more than 35% in 2023, notwithstanding a slight dip in deal volume. Indeed, the year ended strongly for the sector as AstraZeneca acquired cell therapy biotech Gracell Biotechnologies for $1.2bn and Bristol Myers Squibb acquired cancer therapy company RayzeBio, Inc. for $4.1bn, before Novartis snapped up Calypso Biotech for up to $425m just as 2024 started.

Against this backdrop, and following a positive JPM conference and Goldman Sachs’ announcement of a new $650m life sciences fund to kick off 2024, the outlook for UK biotech M&A seems bright. Private equity houses are sitting on significant dry powder with mandates to expand their portfolios, while looming patent cliffs are set to focus global pharma’s interest in identifying targets that could bring in new assets for development or platforms enabling drug discovery. At the same time, increasing regulation in the US is seen as helping to shift focus to the UK market.

So, what should UK biotechs considering an exit in 2024 be doing to prepare?

Define your exit strategy and goals

Before starting any process, think about your exit strategy and goals. For instance, is the company is looking to position itself within a larger organisation to take advantage of scale, are you seeking external investment to accelerate development or are you simply testing the market? Are management and founders looking to stay involved with the business post-sale or are they hoping for a clean break? There is no ‘right’ answer here, but knowing how an exit will best position the company for the future will help you find the right buyer and achieve the best price.

Get your ‘ducks in a row’

One of the first steps a prospective buyer is going to take (once an NDA is in place) is to commence due diligence on the company. This can be the start of the juggle between the ‘day job’ and managing a sales process. Any preparatory work you can ‘front load’ will be invaluable, regardless of the timeline within which you are seeking to achieve your exit. Put yourself in the shoes of a buyer – what information would you want to see?

• Are the company’s key documents and contracts accessible and collated electronically, or are there important pieces of paper sitting in a filing cabinet in the office? Do you have a secure electronic document collation system which you can use to start to build a well-organised data room of documents?
• Are employee contracts and staff incentivisation schemes properly up to date and documented? In the case of those schemes, are they registered, do you have a clear record of options which have been granted and lapsed, and do you have copies of the signed and dated paperwork?
• Are records relating to the corporate structure of the company (in particular, its statutory registers) up to date and accurate – including at Companies House, which is often the first port of call for corporate due diligence?

Identify risks early

Risks that a buyer may have concerns about, such as supply chain, regulatory exposure or bars or weaknesses in commercial agreements, should be identified. Starting discussions with potential acquirers with a clear understanding of your weaknesses and risks will help to avoid surprises and be on the ‘front foot’. Conducting this risk analysis will also identify risks that can be mitigated or resolved – are there key partnerships which aren’t yet properly recorded, does a contract partner have a right to terminate a key contract in the event of a change of control, are any of your patents vulnerable to attack or is your lease coming up to a break period?

IP Strategy

Consider how well your IP assets align with your product/service offering. Look for any weaknesses in your portfolio. These will receive focused attention from buyers and could invite pressure on pricing. Where possible, take steps to address these or have your plans clear so that you can respond to questions. Make sure you are aware of any major third-party IP issues that a buyer is likely to identify (including the terms upon which third party IP may be in-licensed), and have a strategy prepared to acquire appropriate licences or work around any roadblocks.

Create a circle of trust

Be deliberate about who you want to involve in your exit strategy. Again, there is no right answer here, but consciously picking which individuals in the company will be in the ‘circle of trust’, and at what stage in the process, can be critical to maintaining equilibrium within the business.

Seek investor and stakeholder engagement

Having your key investors and stakeholders on board with the company’s strategy and plans for exit will be essential. Early engagement will not only streamline the process but could open doors and provide invaluable experience and guidance in what can be a daunting pursuit.

Work with external advisors as part of your team

We’re often asked about the ‘right time’ to engage with external advisors – whether that’s corporate finance advisers, accountants or lawyers. While doing this close to a transaction could result in a rush to confirm strategy and obtain advice, starting early will gain you a valuable a line of support and give you the opportunity to build familiarity with your team. In either case, don’t be afraid to be open with your professional advisers about what you need – and when.

Please get in touch if you need support with your life sciences and corporate transactional needs.