Biotalk Episode 9 2023 Q3 Report: Global Trends in Biopharma Transactions

During this episode of Biotalk, Geoff Meyerson, CEO of Locust Walk, delves into our 2023 Q3 Report: Global Trends in Biopharma Transactions Report. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing the current state of global private and public capital markets, strategic partnerships, and M&A in the biopharma sector. 

In this episode, Geoff provides valuable insights into our report, focusing on critical areas such as: 

  • The underwhelming performance of public biotech markets 
  • The impact of high-interest rates on biotech companies’ capital-raising endeavors 
  • The trends of stagnant licensing deals, M&A volume, and deal sizes 
  • Advice for the current market and future outlook  

We invite you to listen to our podcast and download our report for the Insights page and welcome the opportunity to discuss its contents with you.  


Deal Context: 0:58

Future Outlook: 8:50

Our Best Advice for the Current Market: 11:32


Welcome to Biotalk. My name is Geoff Meyerson, CEO and Co-founder of Locust Walk, and you are listening to Biotalk, our podcast for biotech deal makers.

This episode of Biotalk is focused on Locust Walk’s 2023 Third Quarter market conditions Report, in which we apply the latest data to analyze current activities in the biopharma deal landscape. Each quarter, Locust Walk’s deal team compiles key statistics and trends showcasing what is happening in the global private and public capital markets and strategic partnering and M&A activity.

  • Our report covers key takeaways for the sector across US, Europe and Asia geographies for a comprehensive view of biotech dealmaking
  • We invite you to review our report and hope you will find it useful in your business
  • To download this report, please go to and go to our “Insights” page. As always Locust Walk is happy to speak with you further if you have any questions about our views or if we can be helpful to guide your organization through the current market environment.

Deal Context

In the next few minutes, I will provide dealmaking context, highlight events that have made a critical impact on the biotech industry, and provide our outlook for the future and our best advice on how you can survive as a biotech deal maker.

  • Jumping right in, public markets has shown poor performance through the third quarter, with the XBI showcasing a decrease in value, down by ~12% since the end of the second quarter
    • This drop brings the XBI back to its position at the end of Q1 2023, with it dropping by 8 percent over the last twelve months, underperforming the S&P which has been up 20 percent over the same period, a staggering 28 percent underperformance.
    • The number of companies trading below cash has increased from June where there was 165 companies, compared to the end of September where there is 196 companies trading below cash. That number is approaching the all time high and is significantly higher than the average of about 25 companies trading below cash, that was seen before the pandemic.
  • The decrease in the XBI is most likely driven by current poor macroeconomic headwinds specifically a high interest rate environment that makes it difficult for biotech companies trading below cash to raise capital
  • Licensing deal flow this quarter was stagnant with the same number of deals as Q2, with average licensing deal value slightly down by 9% from Q2
    • In contrast to previous quarters, partners are taking a shorter-term view towards licensing deals with a drop in investment in early-stage discovery/pre-clinical assets across modalities and indications, but instead are focusing on assets with Phase 2 data across modalities.
    • However, of the high-profile deals that exceeded $1B in total size, the majority (73%) still involved preclinical/discovery assets and are highly milestone driven; indicating some remaining preference for long-term, early-stage investment and that such deals are still being done by large pharma who can afford the terms and are willing to pay large sums in the future if these asset approaches are successful.
  • Despite an increase in M&A volume, average deal size dropped by 52% to $718M in Q3 from $1.5B in Q2; the $7.3B Reata / Biogen deal drove a meaningful proportion of deal value – without this deal, the M&A value would have fallen to the lowest levels seen since Q1 2022.
    • Importantly though, 28 deals were completed compared to 20 deals in the second quarter.
    • Later-stage M&A continues to be dominant this quarter with 83% of all value being phase 2 and later. Once exception, an early-stage M&A of material value was still relatively rare with the exception of the $1.0B DTx Pharma / Novartis preclinical deal. This gives us hope that early deals are possible but unfortunate are still the minority of M&A
  • While the number of IPO and secondary offerings have increased this quarter, which at first glance suggests a slight recovery in the public markets given a corresponding large increase in total aggregate deal value, investors in the 6 IPOs and 7 follow-on offerings saw an average return of -19% and -4% respectively; which shows there are still challenges in the public financing market that if you raise capital and it doesn’t preform in the aftermarket, it means that investors are less likely to continue to invest in those transactions
    • Despite a slight recovery, the IPO market remains largely depressed relative to early 2022 levels, with 4 IPOs this quarter facing poor stock performance.
  • Shifting to private financings, they continued to decrease and remain below historical levels compared to Q2 of this year, but the aggregate and average deal value has greatly increased suggesting a trend towards larger private financings which would fund companies through multiple data inflection points.
    • Total venture financing deal value this quarter rose to $3.7B which is the highest level seen since the end of 2022, and sits at over half of the aggregate values seen throughout 2021. The big take away is there are much larger average financing sizes.
    • Where financings have been successful, they have mostly been later stage rounds focused on later-stage assets with clinical proof of concept.

European and Asian Markets

  • Europe saw a significant drop in private markets, with financing deal values and volumes reverting in the direction of that of Q1 2023 ($578M 3Q23 vs $684M 2Q23 vs. $514M 1Q23), with deal volume still significantly down relative to pre-pandemic levels.
    • Note that the decrease in volume may be a reflection of historical cyclical trends and is consistent with previous Q3 activity.
    • In fact, the average deal value for European financings for Q3 2023 increased by 58% from Q2 suggesting a potential shift towards higher value deal-making, which is consistent with the US as well
  • Europe strategic transaction activity for partnerships and M&A increased this quarter, but aggregate value was notably depressed across both deal types indicating a decrease in average deal value
    • Similar to the US, European partnerships have shifted towards later-stage opportunities, with a large increase relative to the first two quarters of the year.
  • Asia saw a notable weakening in private markets across Japan and China in Q3 2023, with a decrease in aggregate deal value and deal volume which neared previous all-time lows.
    • Japan saw a decrease in aggregate value to $13M in Q3 from $80M in Q2, and China saw a sizable decrease in aggregate value to $467M in Q3 from $952M in Q2.
    • However, when assessed by average deal size, Japan saw a 67% decrease in average deal size while China saw a 17% increase; indicating large differences in the level of funding a company would expect for a successful deal in both geographies.
  • Asia saw an increase in partnering deal activity across China and Japan, with both observing an increase in in-licensing deals that suggest continued efforts on bringing in external innovation.

Context on Continuing Innovation

  • The silver lining is that both the US and Europe markets saw strong levels of drug approvals this quarter, 11 and 17 respectively, indicating continuing innovation despite the challenging biotech markets and overtime, the hope is, this will be reflected in valuations.

Future Outlook

  • So, what does this all mean and what is Locust Walk’s outlook
  • We believe that the recovery, while underway for companies with phase 2 clinical proof of concept data and beyond, will take at least another 12 to 18 months whereby there will need to be fewer companies trading below cash, fewer publicly traded biotech’s, and declining interest rates. This has been something I’ve shared for the past 18 months and continue to believe holds especially given recent comments from Chairman Powell of rates staying high throughout 2024. The Feds fund rate is now 5.25% to 5.5% as of this recording and there is a talk to whether it will remaining flat or go up by the end of the year. The terminal rate by end of 2024 will be 4.5%. We think that the fed fund rate has to come closer to 4% before the biotech sector gets going again, and we don’t see that happening in 2024. The caveat being world events are very unpredictable, if there was further exogenous shocks that could cause rates to decline or a recession to intensify, that could lead to lower interest rates which could benefit biotech having it be the first industry to come out of the recession at the other side.
  • When it comes to private financing, IPO and secondary offerings
    • There are already initial signs of IPO market recovery though this may still be in the early stages given poor performance of companies post-IPO. I would still not classify this as a window even though some companies continue to get out, especially as the pre-clinical IPO continues to be an anomaly. To expect otherwise would require public investors to forget the lessons they learned the past 2 years by investing so early.
    • Pre-clinical private companies will continue to struggle to raise capital unless there is a very interesting scientific story or best in class product with validated pharma interest.

Our Best Advice for the Current Market 

  • Pre-POC private companies will likely need to rely on a combination of cash preservation and their existing investors to bridge the company to a more favorable financing environment. The number of investors that are required to be contacted plus the amount of time required to close the round have both increased dramatically.
  • Given recent trends towards upsized round sizes, companies should plan to capitalize on such higher value deals to fund the company through multiple value inflection points prior to the next raise.
  • We’ve continued to see activity by Asian based companies towards licensing assets that bring innovation to their pipelines and access to global markets. What we’ve seen from our own conversations is that Asian companies have more interest now than ever before in the US market for capital raising and commercialization especially out of China and Japan but for different reasons. These pharma markets and capital environments have constraints that the US does not right now, so those companies are looking to the US for commercialization and for capital.
  • Both investors and management will need to be objective about whether the company can and should exist as an independent company and capture value where possible if the alternative is considering mergers or liquidation.
  • Ultimately, we believe we’re in for a rough ride for the next 12-18 months. We have to persevere and we will, come together as an industry, get through this on the other side as a stronger more vibrant ecosystem that is more resilient.

In conclusion, I want to thank everyone for listening to this episode of Biotalk. Please let us know what you thought and feel free to suggest potential topics for future episodes.  We look forward to a productive dialog and hope you tune in to our next podcast.  Please share with all your friends and colleagues so we can grow the audience.  This is Geoff Meyerson for Biotalk signing off.