2023 Q3 Report: Global Trends in Biopharma Transactions

Each quarter, Locust Walk’s deal team compiles key statistics and trends on strategic transactions and financings. Our 2023 Third Quarter Report applies the latest data to analyze current activities in the life sciences deal landscape.

The third quarter saw a modest recovery in public and private financings in spite of poor public market performance, though as with M&A, activity is largely restricted to later stage companies.

The XBI dropped below $75 a share to its lowest levels seen in the past 12 months, while the S&P 500 dropped ~4% on the quarter.

  • After a relatively strong rebound in the second quarter, the XBI dropped to an 8% loss over the past 12 months, closing below $80 a share for ~60% of trading days this quarter and erasing all YTD gains
  • The S&P 500 dropped 4% over the quarter, with the 25 bps Fed funds rate increase in July and expectations for an additional 25 bps through EOY continuing to dampen macroeconomic outlook; rising 10 year rates add further interest anxiety to the market
  • Poor XBI performance and continued macroeconomic headwinds continued to dampen the prospects for near-term full biotech recovery for non-late- stage companies, in spite of increasing public offering activity

IPO and follow-on offering volume and aggregate value rose in Q3, though post-IPO performance for these companies was generally negative.

  • Q3 saw the greatest number of biopharma IPOs and follow-on offerings since 2021 (e.g., 6 IPOs, 7 follow-ons >$100M), though average return for investors in IPOs was -19%, suggesting the challenging public market environment is likely to persist

Venture financing volume remained steady as deal value rose 45% since the last quarter breaching $3B in total value for only the second time since 2021.

  • New investor interest in Series C saw the greatest growth, with data suggesting interest may be slowly expanding to Series B deals
  • Investor interest in later stage deals continued to grow, with aggregate financing deal value for Ph 2 – 3 deals growing almost 100% relative to Q2 and reaching the highest levels seen since 2021
  • Average round size increased substantially this quarter (i.e., 67% increase over average deal value in Q1 and Q2), signaling a desire to fund through multiple data inflection points

While M&A volume increased in Q3, overall activity continues to remain underwhelming, and licensing activity remained consistent with Q2.

  • Average M&A deal size was $0.7B, down 53% from $1.5B average observed in Q2 and 82% from the $3.9B average completed in the Q1
  • Average licensing deal value was $645M this quarter, representing a 9% decrease from the previous quarter

Continued industry stress driven by high interest rates and recession threat has concentrated activity in short-duration assets de-risked via late-stage clinical data, strong investor syndicates or TAs with momentum. A full recovery will be contingent on improvements in underlying fundamentals.

We invite you to read our report and welcome the opportunity to discuss its contents with you.