By: Michael Shuster
Coming off a year that saw a record number of new drug approvals, significant scientific breakthroughs and a year-end tax reform package that both significantly lowers corporate taxes and provides the long-awaited tax repatriation holiday, it’s not surprising that biotech investors, executives and advisers were in a good mood as they gathered in San Francisco this year for the J.P. Morgan Healthcare Conference.
The skies may have been cloudy, but spirits were high, fueled by expectations for a resurgence in U.S. M&A deals, continued growth in healthcare venture fundraising, and the promise of big data and other technologies.
Good Numbers Fuel Optimism
Three reports shared during the conference bolstered spirits. Silicon Valley Bank reported that healthcare venture fundraising hit an all-time high in 2017 at $9.1 billion. While final venture investment figures aren’t in yet, the bank estimates that the total amount invested in the healthcare sector will also reach a record-breaking $15.5 billion.
The report also notes that IPOs were up as was their pre-money valuation. The only downside according to the report was that M&A activity in the biopharma sector slowed in 2017.
However, EY’s M&A Outlook and Firepower Report strikes an optimistic tone about biopharma M&A in 2018. The report says that thanks to tax reform—particularly incentives to repatriate profits from overseas—M&A activity in the life sciences sector should surge in 2018. According to EY, the top 10 U.S. life sciences companies alone have approximately $160 billion in cash overseas, some of which the accounting firm expects will be used to make acquisitions in the U.S.
On the digital health front, Rock Health characterized 2017 as a record-smashing year in its year-end report. Venture funding totaled nearly $6 billion and there were a record number of mega-deals valued at $100 million or more.
Biotech Matures, but Opportunities Remain
But all the good news did not hide the fact that there is still much to be done. Digital health needs to further integrate into the mainstream of healthcare delivery. In its mid-year report, Rock Health said digital health entered the “middle innings” in 2017. Many believe digital technologies will move into the mainstream of healthcare delivery in 2018—particularly with strong support from both the U.S. Food and Drug Administration and Centers for Medicare and Medicaid Services.
With healthcare artificial intelligence solutions still in their infancy, there’s also plenty of room for development in AI. There have been pilots and trials with impressive results, particularly in the area of diagnostics and decision-support tools. But many investors, including Venrock, believe for the time being that AI is best deployed to improving the administrative side of healthcare.
Meanwhile, tech companies will continue to look for opportunities to leverage the giant datasets being generated in the healthcare sector. Great potential exists in the area of applying analytics to the risky business of drug development. At the same time healthcare incumbents will continue to consolidate vertically, such as the CVS and Aetna deal and the recent announcement that a quartet of healthcare systems are joining together to create their own generic pharmaceutical company.
Biotech Comes of Age
The consensus in and around San Francisco’s Union Square was that 2017 represented a breakout year for the biotechnology industry. With major clinical successes in areas such as CAR-T, gene therapy, immune-oncology, cell therapy and gene editing, many see 2017 as the year that biotech really came of age. As the investors, analysts, executives and consultants headed home at the week’s end, they have every reason to believe the momentum of last year will continue well into 2018.