Capital market trends for the life sciences industry | Deloitte US has been saved
By B.J. Spence, Audit & Assurance Partner, Deloitte & Touche LLP, and Tasia Blazevich, Audit & Assurance Managing Director, Deloitte & Touche LLP
Talking points
- The life sciences capital market landscape has played a major role in determining investment funding, exit strategy, and exit timing for early- to late-stage companies.
- Knowing the current capital market environment can help life sciences companies prepare for an IPO or other exit scenarios.
- Advisory services are available from experienced advisers like Deloitte who understand this complex environment and the needs of life science companies.
Those of us who follow the life sciences capital market may be familiar with the fluctuations of the past few years. From the IPO and SPAC peaks of 2021 to the rise in interest rates and subsequent market slump of 2022 and 2023 to the market uptick in 2024—it’s been quite a ride!
The impact that external factors have had and continue to have on the market make it a challenge to gauge where we are headed in the next 12 months. Below, we share some solid clues and trends to help you better understand and navigate what lies ahead.
Macroeconomic trends and influences
At the start of 2024, things were looking promising with five life sciences IPOs in the first quarter. Halfway through the year, US biotech IPOs had already matched the total cash funding raised by US biotech IPOs in all of 2022.1 Life sciences M&A activity also picked up in 2024, driven in large part by lower valuations as Big Pharma looked to increase its pipelines.2
Then, in the third quarter, the news the markets were waiting for finally happened: The Fed lowered the federal funds rate by 50 basis points.3 The long-anticipated rate cut was expected to provide oxygen to life sciences venture, private equity, and M&A markets that have cooled considerably over the past two years. With the cost of capital now decreasing, will IPOs, M&A deals, and other life sciences market activity increase? To answer this question, it is important to holistically consider several key macroeconomic trends. In addition to interest rates, three other potential macroeconomic catalysts to watch over the next year include GDP growth, labor and unemployment, and effects of the 2024 election.
Life sciences capital market trends
As we look toward the future, specific life sciences industry trends may also drive capital market growth. Among them are increasing demand for drugs developed for an aging population, accelerated clinical trials and cancer therapeutics, rising pharma spending on R&D investments, and the growing trend of outsourcing contract manufacturing of pharmaceuticals to improve quality and regulatory compliance.4 Challenges that could produce headwinds to these trends include high manufacturing infrastructure costs, the high price of R&D, heightened regulatory activity, and shifting investor focus on later-stage companies.5
Life sciences deal trends
The IPO pipeline looks strong, and companies that postponed going public in previous years may seize the opportunity if presented with favorable market conditions. Lower interest rates could spur investors to seek higher returns by investing capital to fund more startups or other high-growth life sciences companies during the latter half of 2024. However, any optimism could be offset by uncertainty in the market and the corresponding volatility that exists during election years.
What are the most common deal types we’re seeing in the market? While SPAC deals and reverse mergers have grown in popularity, specific advantages and disadvantages may make them a better fit for certain companies (see Reverse Merger Considerations for Biotech Companies | Deloitte US for more info on reverse mergers). As a result, IPOs remain the gold standard for early-stage life sciences company exits.
Leading practices for life sciences companies entering the public markets
- Companies planning to go public may make themselves more attractive to investors by implementing these leading practices:
- Have strong cash management skills, coupled with disciplined deployment of capital.
- Be able to accurately forecast, conduct scenario planning, and re-forecast to adjust for unforeseen events.
- Understand what you’re worth before seeking an exit, and consider how the company’s value might change over time.
- Be able to define what financial success looks like and map out a plan to get there.
- Have strong processes and controls in place overseen by a seasoned finance professional.
- Bring on advisers early to help efficiently navigate the IPO process to meet your timeline.
What role can Deloitte play?
Deloitte understands these capital markets trends in life sciences and provides a range of accounting and transaction advisory services to meet the needs of life sciences companies at all stages of development. For more information, visit our IPO Readiness and IPO SelfAssess page. Don’t hesitate to reach out to us with any thoughts or questions.
Endnotes
1 Deloitte research and analysis of S&P Capital IQ, PitchBook, and Nasdaq.com, August 21, 2024.
2 Deloitte research and analysis of S&P Capital IQ, PitchBook, and Nasdaq.com, August 21, 2024.
3 Federal Reserve Board and Federal Open Market Committee (FOMC), “September 18, 2024: FOMC Projections materials, accessible version,” accessed September 2024; Deloitte analysis.
4 Deloitte research and analysis of MarketLine, September 2024.
5 Ibid.
The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.
This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.
Copyright © 2024 Deloitte Development LLC. All rights reserved.
Get in touch
B.J. Spence
Partner, Accounting & Reporting Advisory Services
B.J. currently leads Deloitte’s Accounting & Reporting Advisory (ARA) practice in New England. In this role, B.J. is responsible for overseeing the execution and delivery of services that are targeted at helping CFOs and Controllers solve their complex and challenging projects. B.J. has extensive experience over 16+ years of working with a wide array of public and private companies of various sizes and across many industries. This includes serving as a trusted service provider to the individuals in the accounting and finance departments at these companies, and supporting them as they prepare to enhance their financial statements, business processes, controls, and overall organization as they adapt to challenges commonly faced when navigating U.S. GAAP, SEC, and other professional requirements. Prior to serving in this role, B.J. was focused on serving audit clients of similar backgrounds and profiles and continues to assist the Audit & Assurance business.
Tasia Blazevich
Managing Director, Accounting & Reporting Advisory Services
Tasia has over 20 years of experience working with public and private companies in the life science, consumer products and technology industries, and has spent the last 10 years specializing in emerging growth biotech and early-stage pharmaceutical companies. She currently serves as the US Life Sciences IPO Co-Leader with expertise in complex technical accounting, transaction support services (IPO, Reverse-Merger, SPAC), SEC reporting, financial statement reporting, and Sarbanes-Oxley implementation and compliance and ESG. She is the San Diego Market Leader for the Accounting & Reporting Advisory Services (ARA) practice, with a proven track record of new business development and brand/market awareness. Tasia has strong communications skills, with a focus on fostering a collaborative team environment. She is an emotionally intelligent leader who is passionate about mentoring, coaching and people development. Tasia is detail oriented and goal focused professional who is driven to produce results. Prior to serving in this role, Tasia specialized in auditing emerging growth biotech and early stage pharmaceutical companies in the San Diego market, and prior to that, worked in the private sector in various SEC Reporting and Technical Accounting roles.
