January 27, 2023

2023 Outlook from the JP Morgan Healthcare Conference – Insights from investors, entrepreneurs and stakeholders

Entrepreneurs, investors, and stakeholders met under a downpour in San Francisco at the 41st annual J.P. Morgan Healthcare Conference. Healthcare’s seminal conference did not disappoint as deals formed under umbrellas, in hotel lobbies, and before and after oversubscribed cocktail receptions during the wet week.

Top Five 2023 Themes from our client, bankers, ecosystem and market makers:

  • 1 The future is bright: Especially for companies with clinical or commercial-stage products.
  • 2 Investors with ample dry powder: After two record years in fundraising, life science investors are eager to put capital to work, especially for companies with advanced technology.
  • 3 IPO window: Companies are preparing for the IPO window to return late 2023 or early 2024.
  • 4 M&A selectively: With the increased cost of capital and its effects on both sides of deals, the volume of M&A won’t increase too dramatically, but larger deals should close.
  • 5 Advanced technology leads: As public and private investors become more selective, companies with solid technology pipelines in advanced stages will find greater access to capital.

“The tone at JPM this year — optimistic!” said Ravi Kumar, Partner and West Region Market Leader at Connor Group. He continued, “Company valuations returned to earth after reaching stratospheric heights in 2021. Public biotech company valuations of the IPO classes of recent years plummeted in 2022, and private company investors have been extremely selective despite ample amounts of dry powder to invest. Entrepreneurs, executives, and investors are looking for the pendulum to swing back during the second half of 2023.”

The record IPO/SPAC year of 2021 and overall market decline certainly affected the industry, with many of the IPO class years of 2021 and 2020 trading near or even below cash. While the IPO classes of 2019 and 2018 were still down, their positions held up better than the most recent IPOs.

According to Errol Buxton, Managing Director at DFIN, “Overall, I would say investors are realistic with their outlook. Many estimate an IPO window will open for select deals in Q3 or Q4 2023. Deals with compelling technology, clinical stage products, and robust pipelines should be able to go out later this year.”

While the valuations for private companies have rationalized and investors have become more selective, 2022 was still second to 2021 regarding the number of investments and total dollars. Despite strong investments in both of the last two years, life science investors currently have nearly $20B of dry powder at the ready

U.S. Life Science Venture "Dry Powder"

Jim Neesen, Managing Partner at Connor Group, said, “With the economic downturn and the increase in the cost of capital, we saw an uptick in alternative financings during 2022. The SPAC frenzy ended, and we saw the return of reverse mergers and other means of financing.”

Private company M&A slowed in 2022 as share prices withered and interest rate hikes raised the cost of capital. Life science deals in tools and devices were down overall, while biotech drug development deals remained a bright spot. This trend will likely continue as companies focus on preserving cash and refocusing on internal programs.

Jim continued, “Our outlook for 2023 is cautiously optimistic as we see companies with strong technology and robust cash positions preparing for an IPO in late 2023 or early 2024. We expect this to broaden in 2024. We don’t expect to return to 2021 levels, but perhaps a more realistic level of IPOs going forward.”

Oncology, specifically immuno-oncology, retains its stronghold on investor interest, however we are seeing renewed interest and investment uptick in other areas such as companies focused on autoimmune, respiratory, central nervous system and even cardiovascular and metabolic disorders. Across sectors, companies with a computational approach generally realized higher valuations than those without, as investors now expect this to be integrated into the approach. Companies with COVID technologies and testing faced increased regulatory hurdles from the FDA as companies were required to submit to the agency for approval rather than the laboratory developed test (LDT) approach.

Connor Group Life Science Industry Advisor, Greg Jensen, commented, “Buzz around harnessing computational power in the drug development process from big pharma and startups is high. We are seeing broad implementation of computational biology and structural biology approaches during every stage from target identification to late-stage development.”

If the robust energy and interest displayed during the 41st annual J.P. Morgan Healthcare Conference and related meetings indicate the year ahead holds the potential for a return to more reasonable levels at every stage, including IPOs.


Ravi Headshot

Ravi Kumar

Partner, Technical Accounting

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