Amid downturn, JPM’s Gaito reminds biotech of its risk-sharing roots
Veteran banker: M&A will come in time; looking forward to in-person JPM23
By Jeff Cranmer, Executive Editor
April 21, 2022 12:04 PM UTC
BioCentury
As biopharma investors and executives continue to grapple with the now year-long downturn, J.P. Morgan’s Mike Gaito told The BioCentury Show that the sector has already begun to return to its bootstrapping roots by cutting burn rates, focusing on core programs and revisiting risk-sharing deals and partnerships.
The current market environment is familiar to Gaito, who is J.P. Morgan’s global head of healthcare investment banking and has been in the industry for 26 years.
“With the free-flowing capital and the incredibly low cost of capital lately, we’ve gotten a little bit away from where this industry grew up, which is a lot of risk-sharing and a lot of partnering with other biopharma companies,” Gaito said. Not only do such deals help companies reduce companies’ need for capital, he added, they also provide a way for smaller companies to tap into resources that bigger companies are better able to deliver.
The biotech industry has evolved to a place where “everybody wants to do everything on their own,” and the current downturn serves as a reminder that biotech may have to return to being an industry with lower burn rates and a greater reliance on external partners.
“Our industry was built on having one or two programs that you focused on, and maybe a program or two that you out-licensed,” Gaito said.
As for M&A, he said that J.P. Morgan is “seeing a lot of activity,” but he believes it may take several more quarters for deal-flow to return to the sector as buyers and targets are still digesting the change in valuations in the market.
“In the way that nature abhors a vacuum, M&A abhors volatility,” Gaito said. “Price volatility makes it hard for buyers or sellers to decide what’s the right price.”
Patience is on the side of the big buyers, he said, adding that companies that would be targets remain “reluctant,” at least for now.
He did note that big biopharmas are under pressure for their growth rates during the back half of this decade, and said “product innovation cycles are running off” due to looming patent expirations, among other issues.
“Pharma actually can move the needle quite a bit if they do the right M&A, and, frankly, the right partnership,” he said, noting that “a lot of pharma’s success and growth is built off of external innovation.”
Gaito also weighed in on alternative financing mechanisms in favor during today’s downturn, and whether early-stage IPOs are to blame for the current market environment.
Looking ahead to the bank’s annual healthcare conference, Gaito said that while an official announcement has not yet been made, “we’re excited to be back in person” next January.
The BioCentury Show is sponsored by pathfinder partner Sofinnova Investments. For information on how to sponsor The BioCentury Show and the BioCentury This Week podcast, please contact Sarah Shoaff at sarah.shoaff@biocentury.com.
