Uncertain times, but likely net positive for biotech: Sidley’s Robert Darwin

On the eve of Jefferies London conference, a view on what the new U.K., U.S. governments, with improving financial markets, mean for M&A and private equity

With new governments both side of the pond, capital markets picking up, and some geopolitical overhang, there’s a mixed feast for biotech, with a net trend to the positive, says Sidley Austin’s Robert Darwin, who specializes in global M&A and private equity for life sciences and healthcare companies and investors.

Speaking on The BioCentury Show ahead of this year’s Jefferies London Healthcare Conference and London Life Sciences Week, Darwin, who is based in London, discussed the consequences for biotech of the changing forces as we enter 2025: the new Labour government’s recently announced budget, the incoming Trump administration, the improving outlook for the markets, and the ongoing — if not mounting — tensions between the U.S. and China. Across each of these is a considerable amount of uncertainty, but the pluses and minuses add up to net positive outlook, he believes.

U.K. Chancellor Rachel Reeves’ Autumn Budget, delivered two weeks ago, offered good and bad news for biotech. In the plus column are the continued R&D tax credits and allocation of an additional £500 million to £1 billion in life science investment, though that’s unlikely to be a game changer, he says. “It sounds a lot when you say it, but it’s about the size of an upper mid-market private equity deal.” The biggest healthcare influx is to the NHS, however, “which will work its way through to commercial opportunities for life sciences and healthcare companies.” On the minus side are increased capital gains and other tax changes, which risk “dampening down some of the entrepreneurial spirit and the risk taking that goes along with biopharma.”

Giving the view from overseas, Darwin noted that the Trump presidency has biopharma weighing the likelihood of continued pressure on drug pricing against a less interventionist FTC, which would benefit M&A. There are two wild cards: who Trump picks to lead FDA and what role Robert F. Kennedy, Jr. might have, and what happens with China policy. “Trump may want to make some countries choose. Are you in our camp or another camp?” said Darwin.

On the M&A front, Darwin expects to see an acceleration of activity into 2025 and beyond. Three of the main headwinds are now improved: historically high interest rates are coming down; inflation is coming under control; and who will be in the White House is settled. 

He said that the “twilight zone” in the past few years, where investors could not bring companies to an exit, led to “continuation-type deals” with convertible notes and other financial devices to keep the company alive and running, but never really having the important financial event.

“I think it’s difficult to see how that’s going to continue for too much longer,” said Darwin. “Either the public markets will open on time and there will be some companies — the right ones — which are floated and will continue independently, or there will be an ability for acquirers in the market to pick up assets of value at slightly better prices.”

This episode of The BioCentury Show was sponsored by Cytiva. For information on opportunities to sponsor The BioCentury Show and the BioCentury This Week podcast, please email conferences@biocentury.com.