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Maximize Value July 13, 2022

Shifts in Capital Markets Impacting Biotech, Healthtech, and Medtech

Partner, Health and Life Sciences, Oliver Wyman
Senior Editor, Health and Life Sciences, Oliver Wyman
Key Takeaway
After record-setting investments in #biotech #healthtech #medtech, funding engines are cooling off. The economic environment will cause #privateequity & innovators to rethink partnerships and ways to access capital.

Following a couple of years of record-setting investments in biotech, healthtech, and medtech, funding engines are cooling off. That doesn’t mean the money has dried up, rather it points to markets self-correcting, especially from oversized valuations. This is driving different approaches for innovators and start-ups to not only access capital, but to ultimately bring their products to market.

Conversations around access to capital, partnerships, and, importantly, bringing value to patients, dominated conversations at the LSX World Congress in Boston last month. The gathering pulls together leaders from biotech, healthtech, and medtech, alongside financial advisors and venture capitalists. There were parallels in overarching themes from the European version of the meeting, which was held in London in March. Below are three takeaways we picked up at the Boston meeting:

Think differently about capital: Given the current economic climate, innovators should rethink their approaches to accessing capital. The number of initial public offerings has fallen well of the record-pace from last year. As of early June, a reported 23 biotech firms had gone public, compared to 68 for the same period in 2021. Additionally, valuations that reached peak levels over the past couple of years are coming down to earth. Those trends are likely to continue as fears over inflation and a recession grow across the globe.

No one at the conference argued that a tech crash is coming, but these economic headwinds require more strategic thinking and a longer-term outlook by all stakeholders. Startups have to dial back some expectations as they’ll need to pursue multiple rounds of funding to support their efforts. “Be thoughtful abut how you can address risk,” advised Christine Brennan, managing director of Vertex Ventures HC. “Maybe you can’t hire 150 people” after the first round; it may take two or three to get to that level. And be honest with investors about what risks exist and how those can be addressed in subsequent rounds — including operational, technological, staffing, and other risks — added Andrea Jackson, Director, Northpond Ventures.

The need to partner: Similar to being more strategic in how they access capital, executives should become more thoughtful about developing partnerships. It’s not realistic to assume a company or product can be everything to everyone. As we explored in a previous Oliver Wyman Health article, Big Pharma is making this transition by focusing efforts on specific lines of business and partnering where appropriate for more targeted therapies.

Throughout sessions at the LSX Congress, panelists discussed the need to find collaborations that will result in end-to-end solutions, especially as more care pushes into the home. That includes health- and medtech companies with point solutions coming together. By pulling in technologies that complement each other, companies can minimize risk and scale up more quickly, suggested Amy Waldron, Global Leader for Healthcare & Life Sciences Solutions at Google Cloud-Health Plan. Partnering is also needed with big tech and electronic health record vendors to ensure that solutions are appropriately integrated into those platforms.

The attraction of partnering is being felt in the biotech space, said Jens Bitsch-Norhave, Vice President, Transactions & Innovative Partnering, East North America, J&J Innovation. Recognizing that raising capital is tougher now, tapping into incubators at companies like J&J, Pfizer, or other large firms could give smaller biotechs the resources they need to get test innovative therapeutics. While Big Pharma may not invest in the company long term, these partnerships jump start a biotech’s efforts. “It’s great to see biotech coming back to partnering instead of just trying to raise capital,” Bitsch-Norhave said.

It’s all about the patient: Underpinning all the conversations around accessing capital, partnerships, and bringing products to market was delivering value for patients. For health- and medtech, it’s not just about developing the newest shiny object, rather it’s what makes sense for providers, patients, and how those tools are integrated into the broader ecosystem. Consider the simple notion of blood pressure, as was discussed during a healthtech panel. Taking a patient’s reading once or twice a year in the stress of a doctor’s office is suboptimal. The much better approach is to build out an infrastructure where the patient can do readings regularly at home and upload those directly to the EHR. Integrating longitudinal data into tools for the care team will lead to better decision-making.

This also applies to the increased attention being paid to diversity, equity, and inclusion. Ensuring more diversity in clinical trials is vital to improving drug development, several panelists said during biotech sessions. And then it’s critical that the industry continue to evolve strategies for getting solutions to all parts for the world.

“We can’t forget that there’s a patient at the end of all of this,” Sheila Frame, President of the Americas, Amryt Pharma, said during a panel discussion moderated by Oliver Wyman Partner John Westwood.

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