February 26, 2024

Healthcare Experts See Promising Signs of Rebound in M&A and IPO Activity

Attendees at our annual symposium also discussed antitrust, compliance, and venture funding dynamics in the life sciences and healthcare sectors.

In the second week of January, Goodwin and KPMG convened innovators, practitioners, regulators, and others for our annual symposium on the future of life sciences and healthcare. This marked the fifth year that Goodwin co-hosted the symposium, which takes place during the annual J.P. Morgan Healthcare Conference in San Francisco.

The conference traversed a broad spectrum of healthcare topics, including early-stage investment principles, successful paths for M&As and initial public offerings (IPOs), and trends in capital markets. Panels explored new paradigms in private-equity healthcare investing and the new era of global precision medicine. The program also provided insights into the complexities of the Inflation Reduction Act and strategies to help public companies successfully navigate the challenges it poses.

A deputy director of the Federal Trade Commission (FTC) offered guidance on antitrust trends. Finance experts expressed cautious optimism about a recovery in IPO and M&A markets, following early signs of a rebound in deal activity leading up to the conference. Goodwin partners emphasized the increasing importance of compliance in dealmaking, and investors noted that dealmakers are particularly focused on quality in this environment, including venture capital (VC) coming out of a lull.

Here, we offer five takeaways from the event:

1. IPOs and Mergers Are Poised for Recovery

With interest rate cuts on the horizon, the financing environment is set to improve this year, which will allow more companies to go public or pursue mergers in 2024.

Despite some challenges ahead, companies will benefit from windows of opportunity to raise capital, said Chris Rigoli, Co-Head of Healthcare ECM.

The backlog of companies seeking to go public this year “is pretty robust,” Rigoli said, adding that the quality of companies planning IPOs, especially in the first half of this year, is high.

Rigoli expects this year’s healthcare IPOs to be concentrated among clinical-stage companies.

Srini Akkaraju, founder and managing general partner at Samsara BioCapital, agreed that more companies will go public this year after a weak 2023. Still, he expects IPO filings will take a year or two to return to their normal pace.

(From the “Capital Currents in the Life Sciences: Navigating Today’s Markets” and “Capital Catalyst: Navigating the Path to Public: IPOs, Mergers & More” panels)

2. Mergers Involving Dominant Firms or Early-Stage Drugs Could Draw Antitrust Scrutiny

Companies should tread carefully when considering mergers or other agreements with a dominant firm, said Rahul Rao, deputy director of the FTC’s Bureau of Competition.

Rao pointed to a common thread among the FTC’s recent challenges to life cycle transactions: they each involved a dominant firm—that is, a firm with significant market power that threatened competition.

“Combinations that involve a dominant firm, especially one with a monopoly position, will definitely raise questions that we may want to investigate,” Rao said. He later said that this applies to emerging companies: “I would just be very wary about engaging in a collaboration with a dominant provider.”

Rao also said that products in early development, including drugs or assets that have not yet hit the market, can raise antitrust concerns. The FTC does not limit itself to scrutinizing marketed drugs or phase three assets, he said. Rao noted that the stage of product development is one of many data points the FTC considers in its antitrust analyses. Another data point is the position of the incumbent firm.

(From the “Fireside Chat: Exploring Paths to Collaboration" and "M&A: FTC’s Perspectives on Innovation and More” panels)

3. Healthcare Dealmakers Focus on Key Trends and Execution Risk

Healthcare leaders from Goodwin Health, KPMG, and private equity discussed key trends, deal execution risk, and transactional activity during their panel discussions.

John Jones, co-leader of Goodwin’s Healthcare Private Equity practice and Chair of the Healthcare Regulatory and Compliance practice, addressed ways in which private equity and corporations have adjusted to existing headwinds with creative deal structures, interest rates and cost of capital, inflation, and valuation gaps. These structures include the use of synthetic equity, minority deals, and hybrid earnout structures; an acute focus on carve-outs; and the use of creative financing structures, including portable debt, stapled debt, and sales to continuation funds.

The panel also discussed how meeting compliance obligations is becoming more important for healthcare companies during the dealmaking process. More firms have started to examine their compliance programs and audit procedures as compliance issues have caused more deals to fall apart in recent years, said Jaime Pego, principal at KPMG. Coding and billing are among the highest risk areas, she said.

Although compliance guidance has existed for a long time, the government has ramped up its issuance of such guidance over the past year, said Greg Demske, partner at Goodwin Health. The government expects companies of all sizes to adopt compliance standards, and both buyers and sellers need to think about compliance as they structure deals, he said.

Chris Wilson, Co-Chair of Goodwin’s Healthcare practice, moderated a separate panel with healthcare private equity investment professionals that emphasized the expected acceleration of transactional activity in the healthcare vertical throughout 2024, how private-equity firms are managing enhanced regulatory scrutiny, and which subverticals of healthcare are of particular interest for private-equity investors.

(From the “Spotlight Panel: Goodwin Health” and “Investing in Health: Winning Strategies to Attract Investors and Secure Lucrative Deals” panels)

4. Venture Funding Slowdown Marks Healthy Reset

Last year’s VC funding slowdown was more akin to a healthy reset than a dire downturn. With the capital spigot having dried up, by 2023, the venture-financing bonanza of 2020 and 2021 had faded.

Quality was a key focus for early-stage companies able to attract investment in this capital-scarce environment, said Karan Takhar, senior managing director at Matrix Capital Management. Successful start-ups had a clear plan for producing value, as well as a strong team and scientific hypothesis, he said.

(From the “Unlocking Early-Stage VC Investment Criteria: How the Dynamics Have Changed” panel)

5. Healthcare Start-up Fundraising Starts With Articulating Clinical Solution

The first step for start-ups that want to get funding is to explain the importance of the clinical problem they aim to solve, said Bonnie Anderson, CEO of PinkDx, an early-stage women’s reproductive cancer company. The second step is figuring out how to build a cohort of clinical patients for testing, which could include enrolling a diverse set of patients with and without cancer, Anderson said.

(From “The New Faces of Precision Medicine: Technology, AI, and Diversity-Driven Innovation to Reality” panel)