Conference · Investment · Life Sciences

A Recap of the McDermott Will & Emery Life Sciences Deal-making Symposium

I was pleasantly surprised by how much l learned at the McDermott Will & Emery Life Sciences Deal-making symposium last week.  I don’t say that by inferring I know a lot, in quite the opposite, but what I mean is that a lot of conferences and events are the same content but with different names for each panel.  This conference was different, I took more notes than I can ever remember and walked away thinking I better understand the challenges that are faced in life science deal making.  I also realized what a small part insurance is but if used properly can help get a deal across the finish line.

The event was a mix of attorneys, investors and of course companies in the life science space.  There were also a few service providers (my company, Alliant, being one of them) that helped underwrite the event as you would expect.  Investors included angel investors, family offices, corporate venture, private equity and venture capital, so a little bit of everything.

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So what were the takeaways?  Here are some of the highlights:

  • Vertical Integration can be a challenge as there are anti-trust issues
  • Legal bar for getting deals done is getting higher. Due Diligence quality is going up but the quantity is going down.
  • Reps & Warranties coverage is now part of almost every deal and for the most part makes getting deals done easier. However, it does bring another party (insurance company) into the equation which can add some challenges (Shameless plug – I can help place this coverage for you)
  • The recent Akorn/Fresenius decision was surprising and could have implications for other deals down the road. This case allowed Fresenius to exit the deal because of a Material Adverse Change, believed to be the first time a court has allowed this.  You can read about it here.
  • Having strong patents is very important and can be instrumental in getting a deal done. Alliant spoke on a panel and discussed patent insurance which for most of the audience was something they never heard of or even knew existed (another shameless plug – I can also help you understand this coverage and place it on your behalf).
  • Non-dilutive funding is out there, but don’t become a slave to it.
  • If you are a company raising money you should you know the answers to these questions – How much? What is the money for? What is the valuation of the company? What is the inflection point that you are hoping to reach?

A learned a bunch more, but wanted to share some of the hig

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hlights, at least for me, about what I learned.  A big thanks to McDermott for hosting the event and letting us at Alliant partake.

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Medical Devices · Investment · Conference

Device Talks Boston – A Recap

Last week I had the pleasure of spending a few days in Boston attending two separate life science events, Device Talks and McDermott Will & Emery’s Life Sciences Dealmaking Symposium.  Although I love spending time in Boston, which is booming, I wish these events had been another week as I was not at home for my wife’s birthday (FaceTime is nice but it doesn’t replace the real thing).  Fortunately, I have a super supportive wife and I tried making up for it, but one more time…happy birthday!  Today, I want to focus on the Device Talks event and what I learned.

Boston Skyline

Because the two events overlapped I was only able to attend Device Talks on Monday and Tuesday.  As you probably guessed, the event was focused on medical device companies.  There were a wide range of companies there, from the largest device companies to early stage companies and everything in between, along with investors and service providers.  There were three concurrent tracks – Ecosystem, Technology and Investment – that you could pick and choose from depending on what interested you.  For Tuesday I attended only the Investment sessions and was very pleased with the content.

I attended two of the sessions, the first focused on the use of Strategic investors and the second focused on the risks facing companies as the mature.  It seems to me that most of these events now have a panel on strategic investors or corporate venture and rightfully so as this is a large source of capital.  Some takeaways were that strategics have a time horizon of 24-36 months when they make an investment.  For the majority of products they want the product to be in the market and producing revenue within that time frame or they will not be very interested unless your product is a completely new product.  They essentially were saying that they want the product to be as derisked as possible.  They are also looking to fill holes within their portfolio.  They may do a deal simply to fill in a gap that their competitors can offer and might be less about the economics of the deal. If they can prevent their competitor from getting shelf space and getting a foot in their door for their other products then smaller deals to prevent this scenario could make sense for them.

Device Talks Presentation

The second session was about thinking about the risks emerging companies might face and how to overcome those when seeking investment or acquisition.  The panel was a mix of investors and attorneys.  This panel started out discussing that M&A deal activity is down as far as dollars are concerned compared to 2017 but if you took out the mega deals in 2017 the average deal size is actually up.  Similar to Corporate VC’s, investors are looking for companies to be more accretive to revenue faster and this is especially true when compared to biotech.  Interesting tidbit, biotech companies are sitting on an average of two years’ worth of cash.  The panel had the following suggestions to help derisk your company/product:

  • Reimbursement is and will continue to be very important. Investors want to know companies have a track for reimbursement and it was suggested that you bring in reimbursement specialists early because it can be a stumbling block for getting a deal done.
  • Along the same lines, bring in a regulatory specialist early.
  • When raising money, make sure your goals are aligned with your investors and they are a good fit for what you want to accomplish, there is a lot of money out there so don’t necessarily take the first check that you are offered.
  • Be honest and transparent when engaging with investors or a company that might acquire you. The starting price is usually the top number you can get and if skeletons are found in the closet it could derail the whole deal or reduce the price.  If you lay out issues from the get go before a number is agreed upon you will be in a much better position long term.
  • Listen, keep your ears open. The industry is constantly innovating and you want to be able to adapt.  Don’t be afraid to take advice (I think this could be applied to most industries).

The second panel was excellent and unique in the makeup of the panelists, more attorneys than you would expect but all with diverse backgrounds and specialties.  Although I only attended half of the event, I learned a lot and would recommend if you are an emerging company that you attend this in the future.  There is a lot to learn and a good mix of companies that would be worth meeting.

Conference · CFO

NJ Tech Council CFO Forum – An Overview of the Amneal/Impax Merger

Today I had the privilege of attending the NJ Tech Council CFO Forum at EY in Iselin (Metropark), NJ.  The featured speaker was Jim Mastakas (bio), the current Senior VP and CFO of Virtus Pharmaceuticals, and who previously worked at Amneal.  Jim was there to speak about his time at Amneal and the deal he helped close with Impax Labs valued at approximately $7 billion.

Amneal was a private generic drug company that merged with Impax Labs earlier in 2018.  Impax Labs was publicly traded company, but Amneal was the more valuable company. When the deal finally closed the split in ownership split was 75% Amneal and 25% Impax Labs, with the combined company retaining the Anmeal name and becoming a public company (AMRX).  The deal was transformational for both companies as the combined company became the 5th largest generic drug company in the US, with expected revenues of $2.6 billion.

Jim talked about the challenges of getting the deal across the finish line and what he thought CFOs need to pay particular attention to.  For a deal to close a lot of things need to go right and from an operational standpoint some of these are obvious.  Some of the less obvious things a CFO needs to be aware of are:

  • Making sure proper confidentiality was in place both externally and internally
  • Knowing you will need to manage a CEO’s expectations when it comes to the numbers
  • Assuming your company is like most, stretched pretty thin, being prepared to lobby for extra help in the due diligence
  • Managing employees’ motivation in getting the due diligence completed. This can be done through compensation and because employees know there is someone who does a similar job on the other side of the transaction
  • Making sure there is a person whose sole job is integration of the two companies so that those synergies are realized. You can expect this to be done correctly if this is a part-time job for a current employee, the person has to devote all of their time to this.

The one thing he would have probably done differently was not have updated Amneal’s forecast as frequently as he did.  The reason for this was two-fold.  First, a lot of time and effort was put into these forecasts every time they needed to be redone, time that he and his staff really did not have.  Secondly, it could have possibly undermined the confidence that Impax had in the numbers since they changed so often.  Ultimately, Jim did not feel that happened but felt it was a real possibility.

This was a great event and Jim did a wonderful job of walking through the transaction and what went down.  Kudos to NJTC for putting it on and EY for hosting.

Conference · Med-Tech

2018 Medtech Conference Recap

I had the pleasure of attending the Medtech Conference on May 31st in Minneapolis that was put on by Healthegy.  This was a one day event and the goal was to bring together startup and early stage companies, large corporations, investors, academia, and of course service providers like myself that cater to the industry.

For me, I have two goals when I attend conferences.  The first thing of course is to network and build relationships with companies, investors and other service providers.  The second goal is to learn.  It is important and interesting for someone like myself who works exclusively with life science companies to hear the challenges, success stories and everything in between.

Of course the biggest challenge for companies in this space will always be money.  Silicon Valley Bank who is a leader in this space got things rolling and in some good news with investment trending upwards as shown below.

SVB Medtech Investment Trends

– Information from Silicon Valley Bank

As for exits, they were more or less flat year over year, with M&A activity far outpacing IPOs.  Unfortunately, 2016 and 2017 exits were well below the exit activity in 2014 and 2015 which were almost double.  One of the reasons behind this slowdown could be Medtronic making no meaning acquisitions since they acquired Covidien a few years back but I don’t think it would be fair to put the blame solely on them.  Coincidentally, SVB’s presentation was followed up by the CFO of Medtronic who indicated they might be on the lookout for acquisitions as we move forward.

Following SVB and Medtronic there was a session with three investors – a VC, a Mutual Fund, and a Hedge Fund.  As expected, there were more similarities between the Hedge Fund and the Mutual Fund.  For both, they see a much smaller number of deals, both are looking at an IPO as a preferred exit and I would say both need that exit to happen quicker.  On the VC side they are getting in earlier, sourcing a lot more deals and are not as concerned if a company does not have a clear exit strategy when they invest.

After these sessions the conference tilted away from the financial side and more towards product and operations.  They had a panel with CEO’s who were not the founders.  One thing they made clear is that both a CEO for hire and the Founder/CEO model can be successful but also disastrous, neither model is better.  The important thing for a Founder/CEO is to be self-aware and be open to input from employees and board members.

Reimbursement was a well-attended session and outside of money this is a huge issue for companies.  If you do not have the ability to get reimbursed your company will not succeed regardless of how great the product is.  Different strategies were discussed, such as piggybacking off a current code or trying to get your own code.  Both present obstacles.  One of the obstacles that took me by surprise was the difficulty in getting support for a new code from the various medical societies.  Much like in other facets of life, it can be difficult to get people to change their ways and certainly the use and support of med devices is no different.

The conference circled back to where it started and that was on money.  They highlighted Penumbra which is a remarkable story as it was not venture funded, something that is super rare for a company their size.  This was followed up by a discussion on corporate venture.  I was at a BIO event a few weeks prior and there was a session on the same exact topic.  My takeaway was that on the Medtech side the corporate investors are a bit more active once they make an investment and are willing to share company resources with the entity they invest in.  On the biopharma side access to company resources is much more limited, but something they are trying to do a better job of.  Where things get tricky for both Medtech and Biopharma is when there is multiple corporate VCs involved.

My time in Minnesota was time well spent.  The folks at Healthegy did a great job on the content and making sure the agenda hit a lot of issues that are important in the industry all the while getting it done in one day.