Left to right: Ryan Murr and Scott Elliott Ropes & Gray partners (Jason Doiy)
PALO ALTO — Each January, hundreds of companies flock to San Francisco for the J.P. Morgan Healthcare Conference, the signature industry event that brings together movers, shakers and dealmakers to build a playbook for the year ahead. Over e-mail, The Recorder caught up with San Francisco Ropes & Gray corporate partners Ryan Murr and Scott Elliott, who reflected on the buzz coming out of last week’s summit.
What were two of the biggest takeaways from the J.P. Morgan Conference that you expect to guide the coming year?
RM: 2013 was a very hot year in the capital markets for biotechs, with the IPO window opening wide for the first time in several years. One of the big questions going into J.P. Morgan was whether this positive momentum would continue into the new year. From the tone around the conference, there seems to be optimism that the capital markets would continue to be receptive to quality biotechs looking to go public. However, companies that traditionally would have had a hard time going public, such as those with only early-stage clinical validation, may find the market less receptive in 2014 and valuations less frothy. All in all, it feels like a healthy and sustainable level of interest with respect to corporate finance.
SE: In addition, there seemed to be significant interest in M&A activity, especially with respect to strategic acquirers. The strategics were out in full force at the conference as they are looking to put their significant cash reserves to work.
How did this year’s conference stack up compared to those of years past?
RM: The conference and the surrounding events seem to get bigger and busier every year. Without a doubt, this is the premier event in the life sciences industry and the best opportunity for companies, investors, strategic partners, bankers and analysts to converge and meet in one place over a very busy week.
Can you share a bit about the “option to purchase” trend that has developed over the past few years in pharma and life sciences? Why is this an important development for the space?
SE: We continued to see an increase in the option to purchase structure in life science deals, especially with respect to the biotech space. This structure has developed as a good way to bridge the valuation gap between the buyers and sellers as well as a way to share the risks associated with clinical trials and commercial acceptance. It is also viewed as an attractive way to provide additional cash to fund product development without further diluting existing stockholders.
By providing the cash up front and having an option to purchase the company or assets on the backend, the strategic acquirer can monitor the development of the product candidate and know what the ultimate price will be if there is clinical success and marketing approval from the FDA.
Are there any financing or other regulatory trends that are on your radar for the coming year?
RM: The FDA recently announced an expedited approval pathway for “breakthrough” therapies. This designation is intended to expedite the development and review of drugs for serious or life-threatening conditions. The pathway is relatively new and guidance is still forthcoming. It will be interesting to see how the FDA applies these new rules to drugs in development and what it means for the industry, hopefully shortening the time (and cost) for approval of new therapies.
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