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Mergers And Acquisitions: A Key Driver Of VC Investment In Healthcare

The drug pricing debate is a worthy one. We have to have open discussions about maximizing innovation and access. But half-written reports from a region that is home to the economic benefits of this industry do little to move that debate forward.

 

As financiers of the early-stage life science ecosystem, we feel inclined to respond to a recent release from a Congressional office that explores the role of mergers and acquisitions (M&A) within the early-stage life science investment community. In this case, we must convey the positive impact of M&A on the success of the current American drug development ecosystem in helping patients in need.


First and foremost, we must underscore that drug discovery and development in the United States, along with the private investment being funneled into the biopharmaceutical sector, has grown substantially in the past few decades. As we have noted before, the high risk-reward drug discovery model, which encourages M&A,

has allowed unprecedented discovery in the life sciences at a time of significant need. M&A have contributed to the streamlined efficiency and growth of the sector by contributing to the flow of industry investment, thus allowing funding to funnel back into the system for future cures.


The high risk-reward drug discovery model, which encourages M&A, has allowed unprecedented discovery in the life sciences at a time of significant need. M&A have contributed to the streamlined efficiency and growth of the sector by contributing to the flow of industry investment, thus allowing funding to funnel back into the system for future cures. Fortunately, leaders in this space have explained this well.


It’s a Relay Race – Johannes Fruehauf (Mission BioCapital)

As noted by Johannes Fruehauf, Partner at Mission BioCapital and Executive Director at LabCentral, many entrepreneurs understand the M&A model and strive for acquisition. We cannot agree more with his

eloquent “relay race” analogy when describing the collaborative drug development ecosystem.


The NIH and academia begin the race with initial drug

discovery and hand off the baton to start-ups for early stage research and development. These smaller companies hand the programs over to the third leg of the relay race, larger pharmaceutical companies, for the more expensive later-stage development, who takes the cure to the finish line of commercialization. Each leg has a key role in the race, and all have the common goal of bringing discoveries to market.


Over the past three years, we have expressed this sentiment to policymakers – M&A, along with every other stage of development, has contributed to medical advancements that have helped millions of Americans.


Streamlined Efficiency & Increased Growth – Bruce Booth (Atlas)

Bruce Booth, Partner at Atlas Venture, had already written on this topic: M&A helps bring new assets and funding to the process and allows larger companies, with more experience and resources at their disposal, to champion these programs over the finish line – ultimately bringing these therapies, drugs, biotechnology, and cures to patients in need.


We cannot understate the investment and time required to develop a drug, paired with the high failure rates of the industry. These are remedied by substantial payoffs that are oftentimes only available

through M&A. Once these medical discoveries make it to phases 2 and 3, many entrepreneurs do not have the experience or skillset to scale accordingly – which is where M&A comes in.


As usual for Bruce, his full post on this a year ago was prescient (and we wish the Congressional office had read first): https://lifescivc.com/2020/03/biopharma-ma-drives-more-efficientresource-allocation/. We encourage everyone to read.


As investors, we recognize that a considerable portion of ROI is realized through this process. M&A has allowed for higher realized returns, which has led to an increase of Limited Partners of VC funds investing in the biopharmaceutical and biotechnology sectors.


VC funding has substantially risen within these sectors, with biopharma investment reaching $24.5 billion invested and seeing multiple $1billion-plus private M&A in 2020. The additional investment funneling into the ecosystem has led to more startups receiving funds to cultivate their ideas – ultimately allowing more cures to be discovered. Ultimately, M&A provides liquidity in the market and allows funding to be recycled back into the ecosystem for future medical advancements.


The drug pricing debate is a worthy one. We have to have open discussions about maximizing innovation and access. But half-written reports from a region that is home to the economic benefits of this industry do little to move that debate forward.


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