Although the general market appears to be slowing down in some sectors and there are talks on Wall Street about a “potential” recession in the United States in the second half of 2019, I do not see it affecting the life sciences industry to a great degree.”

David H. Crean

MANAGING DIRECTOR, INVESTMENT BANKING, OBJECTIVE CAPITAL PARTNERS

January 17, 2019

Could you introduce us to Objective Capital Partners and the role the company plays in the life sciences industry?

Objective Capital Partners is a leading middle-market M&A investment banking firm with a broad service offering, including M&A advisory, partnering transactions, strategic advisory, as well as helping companies to raise capital. Since 2006, our seasoned professionals have collectively executed over 500 M&A and advisory engagements in more than 35 industries. One of our key verticals is the life sciences industry, and last year alone, I saw 410 pitches from companies looking to grow or exit. The reason life science entrepreneurs approach Objective Capital Partners is that they are scientifically focused and may not necessarily know how to grow a business or explain their story or business model. About eight out of ten life science companies that I see are unable to tell their story in a compelling manner to get an investor to write them a check. So, we help them tell their story to a potential investor or strategic company.

Which therapeutic areas are currently garnering the most financial interest?

Oncology, and especially immuno-oncology, is still attracting the greatest amount of investment. Neurology, infectious diseases, stem cell, gene therapy, regenerative medicine, precision medicine and digital health are also areas of great interest for investors. One has to be careful and do their proper diligence as some areas, such as neurodegenerative diseases, are high-risk with a lot of disappointing results and failed companies.

There is a notable shift towards venture capital funds and large pharma acquiring and investing in biotech at an earlier stage. How do you see this trend developing?

Large pharma and big biotechs are taking earlier shots in the game, which I believe is a better strategy than waiting for the technology to develop and become more expensive. What is most important when doing a transaction with an early-stage company is that extensive due diligence is carried out due to the higher potential risk. What we are seeing more of is a  “build-to-buy” model, where companies put their money in with an option to purchase later.

What due diligence process do you carry out when considering a potential client?

Our due diligence process is part art and part science. The science part entails detailed diligence on evaluating the management team, where the technology and finances stand, whether a company is ready to sell or to be partnered with and whether they adopt proper accounting methods. Getting companies prepared to move from merely a cash management model to an accrual accounting system takes plenty of time. The art involves a softer approach, which includes sitting down with the owners and asking them about their goals and objectives, and then evaluating if they truly want to sell. Because of my experience of over twenty-five years in M&A, it is easy to evaluate whether they are ready or not. It is about asking a lot of questions to understand what is driving their decision to sell.

What advancements are you noticing within San Diego’s biotech hub?

The key advancement I have noticed in San Diego’s biotech hub is that more capital is being attracted into Southern California. Several years ago, much of this was going up to the Bay Area. We have a very strong capital development group of professionals in this region, and are trying to attract money, especially from the bay area, NY and Boston. We are also seeing more venture funds come to San Diego. There is a lot of great technology in Southern California, across Los Angeles, Orange County and San Diego, and the momentum is beginning to pick up.

Certain companies are looking towards Europe and Asia to diversify their client base in anticipation of the upcoming slowdown in the United States economy in 2019. Are cross-border transactions becoming more commonplace?

We are currently witnessing a lot of cross-border transcations, especially between Europe and India, China and/or Japan. This is a big area of focus for investment banks and financial service providers with cross-border transaction teams now being set up. We are also seeing a continued trend of investment from Asia Pacific, especially from Japan, South Korea, and China, with companies looking to gain a foothold in the United States. There is plenty of cash in those regions and the investors are looking to deploy their capital in quality companies. Although the general market appears to be slowing down in some sectors and there are talks on Wall Street about a “potential” recession in the United States in the second half of 2019, I do not see it affecting the life sciences industry to a great degree. The life science and healthcare industries tend to be counter-cyclical, so I do not see a slowdown versus other industries or sectors.

Could you underline your key objective for 2019?

The key goal for 2019 is to continue growing the firm by identifying greater quality clients and transactions. We want to help life science companies to either grow or exit their businesses. We would like to grow the firm in a very disciplined way with the right resources and focus. I believe the IPO market will start to slow down in the first half of 2019, so that will limit access to public capital for those life science clients looking to go public. In general when this happens, companies tend to seek private capital, partnerships or an M&A. This will most likely point to a busy 2019 for us.

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