State of the Union: MedTech

Strong Fundamentals Driving Valuation Recovery
As we close the book on 2023 and move deeper into 2024, MedTech fundamentals remain overwhelmingly positive. Procedure volumes, utilization, pricing trends, and the pace of regulatory approvals and new product launches are improving from recent years. Meanwhile, macro dynamics (ex: supply chain issues, staffing delays, and high inflation) have stabilized, and following a strong end to 2023, healthy growth expectations have rolled into 2024. In tandem, company valuations have bounced back from recent lows. As of today, high growth SMID MedTech average forward EV/Revenue multiples have recovered from 4-5x in 2023 to 6-7x, reflecting improving sentiment and anticipation for a more conducive environment for growth on both the top and bottom line.

Where to From Here?
Given a solid operating environment and clear guidance now set across the sector, we hope to see a stable-to-improving valuation environment looking forward. We aren’t expecting an acute upswing in MedTech multiples (considering few catalysts for the sector over upcoming months), but we are keeping a close eye on trends that could put the sector back in relative favor over the course of the year and beyond – for example: stronger-than-expected growth from new product launch cycles (ex: pulsed field ablation, renal denervation, and automated diabetes management devices) or sensitivity and risk aversion to pharma policy-related risk into the upcoming election cycle. Reach out to our team to talk about evolving market dynamics and factors that might be particularly relevant for investors taking a look at your business.

Focus on Profitable Growth
Investor quality screens also continue to evaluate high growth SMID MedTech companies for Adjusted EBITDA and margin expansion trends, with attention given to companies at an inflection point. While organic growth remains important in value creation, profitability and cash flow have remained a central focus. Similar to the rest of the market, MedTech valuations were inversely correlated with real treasury rates. Therefore, as interest rates declined, investors focused more on revenue growth than profitability and valuations rose. However, under quantitative tightening, heightened focus on profitable growth and cash generation has raised the “quality screen” for MedTech companies as investors key in on continued top-line growth, alongside a steady focus by management teams to improve operating leverage through prudent growth and cost initiatives, leading to somewhat healthy margin expansion, cash flow, and value creation. As illustrated, high growth SMID MedTech companies are expected to generate improving Adj EBITDA growth and margins in coming years on firm underlying business fundamentals and prudent management execution.

Optimistic for an Improving Deal Environment
Our positive outlook for 2024 is reminiscent of past environments marked by dynamic dealmaking and capital raise activity. We anticipate that growth-focused tuck-in acquisitions will remain an important value creator this year, as cash rich companies look to meet rising growth expectations while executing operating leverage improvements and cash generation.  As shown below, recent acquisitions of revenue-generating MedTech companies have closed at a premium.

Our team is engaging in a significantly greater number of IPO readiness discussions than in the past 1-2 years given a substantial backlog of scaled medtech businesses that could be well positioned to raise capital via the public market in the near-term.  

Further, a look at the biotech financing environment (often a leading indicator for other sectors of healthcare) would suggest that demand for new issue deals is alive and well. Year-to-date, more money has been raised in biotech IPOs, follow-ons, and overnight transactions than across the entirety of 2023. And in cases where transactions followed on heels of strong clinical data, investors have been willing to ascribe high valuations (ex: CG Oncology, whose stock has held above $42 / share for over a month following its upsized IPO which initially priced at $19 / share in January). We see the potential for heightened biotech activity to usher in positive deal momentum for MedTech as the year goes on.


In Summary
2024 is shaping up to be a promising year. Positive sentiment, strong underlying fundamentals, and improving valuations lay the foundation for additional value creating events.  As management teams focus on execution, it is important take the right proactive steps to benefit from potential capital market opportunities. Reach out to our team to talk more about your business and strategic positioning in this environment.


Gilmartin Group has extensive experience working with both private and public companies across the MedTech space. To find out more about how we strategically partner with our clients, please contact our team today.

Authored by: Vivian Cervantes, Managing Director and Steve Yeung, Associate Vice President

MolDX Proteomics Testing and CMS’s Proposal to Downregulate IVD’s

On Tuesday, February 27th, Gilmartin Managing Director, David Deuchler, hosted a webinar with Hannah Mamuszka (Founder & CEO, Alva10), Ipsita Smolinski (Founder & Managing Director, Capitol Street), and Isaac Ro (Partner, Catalio Capital Management). The panel discussed implications of FDA’s proposal to downregulate IVD’s from class III (high risk) to class II (moderate risk), FDA’s LDT proposal, and Palmettos MolDX on coverage for Proteomic diagnostic tests.

Moderator: David Deuchler, Managing Director, Gilmartin Group

Guest Speakers:

  • Hannah Mamuszka, Founder & CEO, Alva10
  • Ipsita Smolinksi, Founder & Managing Director, Capitol Street
  • Isaac Ro, Partner, Catalio Capital Management

Key Takeaways:

Background
On January 31, the FDA’ Center for Devices and Radiological Health (CDRH) announced the intention to initiate a reclassification process (see here) for most Class 3 (high risk) IVD’s to class 2 (moderate risk) for infectious disease and companion diagnostics. In doing so, the potential approval pathway moves to a 510K approval from a premarket approval (PMA) process. Importantly, in downregulating to a Class 2 device, the standard of “substantial equivalency” becomes the bar for approval. Additionally, the FDA proposed a rule in September 2023 to regulate LDTs as IVDs are regulated, with a final ruling planned for April. Lastly, we discuss Palmetto’s MolDX coverage change, which will now provide a reimbursement pathway for protein-based tests versus solely DNA and RNA prior. With our webinar participants, we delve into the regulatory and payor landscape and identify key potential implications of the aforementioned rules and proposals. 

The logistics behind a potential final FDA rule on LDT regulation or IVD reclassification largely remain up in the air
While the panelists acknowledged the potential for a 510k approval vs. a premarket approval (PMA) process with the down classification of IVDs, the 510k process could still take multiple years and require millions of dollars for labs to develop. Additionally, for the LDT proposal, Ipsita Smolinksi highlighted lobbying groups, including the American Clinical Laboratory Association (ACLA), are particularly vocal on the proposed rule. She believes if the rule were to be finalized in April, there could be potential for a variety of different process delays, including potential lawsuits and congressional engagement (in addition to a potential government shutdown) that could slow implementation. The VALID and SALSA Act’s, which have stalled in congress, could see renewed legislative attention following FDA’s action and subsequent litigation. The question of realistic implementation was also a topic of conversation, in which the FDA would likely need to implement oversight to thousands of labs, many of which are non-profits, which would likely bring complication to the process.

Private payors are not as concerned with regulatory policy (including a potential down classification of IVDs) as they are most concerned with test utility
Our panelists believe that the potential downregulation of IVDs is likely to be a lengthy process once it commences and will impact ~50% of high-risk class III tests. On the payor side, Hannah Mamuszka at Alva10 commented on payors’ lack of understanding the difference between IVDs and LDTs (or class II and class III IVDs). Rather, they are more interested in the problem the test solves, who will have access to the test, and which clinician, physician, or institution will utilize it. Importantly, payors are primarily concerned with test utility, which includes logistics surrounding patient management and the clinical workflow, improved patient outcomes, and ideally, improved economics. In other words, Payers are largely focused on understanding the problem that a test solves and whether it makes sense for a patient population, rather than solely focusing on clinical validity.

In terms of a potential IVD reclassification, investors are looking for diagnostic companies that will benefit from regulation or can navigate the change
In our discussion, it appeared that investors prefer to invest in companies who understand the regulatory landscape. Specifically, Isaac Ro indicated that he looks to partner with companies who understand regulatory and have a developed plan. He spoke to his experience examining companies who either benefit from down regulation or those who need to raise capital to contend with a new set of regulatory rules. His advisement to companies has been to “duck under the wave or get ready for it”, as he believes that some companies will not be prepared to navigate the potential new change. For the companies that Isaac works with, many of them have been navigating a potential IVD reclassification and remain well-prepared.

Regulation and potential reimbursement should be top of mind for diagnostics companies in their test development efforts
Engaging with payors earlier in development plans can be advantageous for companies in understanding clinical and financial payor problems that need to be solved.  Our panelists believe it is critical for diagnostic developers to involve themselves in conversations with payors, both CMS and private, to gather feedback on study plans and their perspective on utility. This engagement is not only important for payors, but for investors as well, as Isaac Ro noted that they typically look for companies who build their business model around this dynamic as there is higher probability for success.  Additionally, clinical utility and prospective data is not only important from a regulatory perspective but holds significant value to investors as well. Generally, companies attempting to raise capital have largely been asked to present utility data, which is the reason why we see companies performing large studies. Isaac highlighted that many companies he has worked with understood the importance of data prior to the launch of their company, and he stressed the advantage of undertaking utility studies with prototype tests prior to a company launch.

Palmetto’s MolDX coverage of protein-based diagnostic tests provides proteomics companies with a clear reimbursement pathway
Palmetto’s MolDX change released in January now includes coverage of protein-based diagnostic tests, in which proteomics companies under certain CPT codes will be required to go through the same pathway as DNA and RNA tests. The MolDX process includes utilization of a tech assessment framework and obtaining a Diagnostics Exchange (DEX) Z code. As a reminder, labs with LDTs are required to register their tests for a specific Z code while adhering to Medicare Administrative Contractors (MACs) jurisdiction policies. Hannah Mamuszka noted that the new coverage may benefit proteomics companies who do not currently have reimbursement, as it will provide them with a clearer pathway to coverage. Proteomics companies may now also benefit from discussions with MolDX, where there exists a technically educated group who is willing to engage with companies on utility and risk conversations. On the other hand, the change may present a challenge for reimbursed proteomics companies who will be required to submit a tech assessment and risk losing coverage. Overall, panelists view the MolDX proteomic coverage as a mostly positive development in the long term that will create more transparency for companies despite some current unknowns.


Gilmartin Group has extensive experience working with both private and public companies across the Medtech, Biotech, Life Science Tools & Diagnostics, HCIT & Digital Health. To find out more about how we strategically partner with our clients, please contact our team today.

Authored by: Gabby Gabel, Analyst, Gilmartin Group

Key Considerations for a Reverse Stock-Split

The recent uptick in biotech valuations has reduced the number of companies trading below a dollar, but there remain a large number of would-be drug developers whose stock price is still measured in cents. As such, once must assume that C-suites across the country remain awash with chatter of an imminent reverse stock-split. What, then, are the factors a company should consider when pursuing a reverse stock split? Do they affect the momentum of a stock’s trading? And why even do them at all? Let’s start with the latter.

Over the last year, a large number of small companies have risked being delisted for non-compliance with Nasdaq’s and NYSE American’s continued listing requirements, with the chief culprit being a failure to maintain at least a one dollar closing bid price for 30 consecutive (business) days. In other countries, minimum share prices are not a thing. On the London Stock Exchange, for example, there are numerous companies whose share prices are quoted in double-digit pence, and people are happy to hold them. After all, where do you think the phrase “penny stocks” came from? Not so in the U.S. though, which is why I find myself writing this blog.

Now, Nasdaq allows 180 calendar days to regain compliance to its rule by maintaining a one dollar closing bid price for a minimum of 10 consecutive days during a 180-day period. But if a company cannot meet this requirement, a reverse stock split is usually the path forward. A reverse stock split increases a company’s share price while reducing the number of outstanding shares. Meaning that, all other things being equal, a company’s market capitalization remains the same, and investors own the same percentage of the company before and after.

So, it’s about fixing a technicality.

We recently looked at data from over 100 reverse-splits since 2022 to answer the two other questions I posed earlier. For companies with a market cap of below $100M, a 1-for-10 or 1-for-20 reverse stock split is about average. Generally, post-split these companies’ stock performance has largely been positive (though it’s a small sample size and doesn’t account for the general rise in sector valuations).

Individual performance is highly stock-specific – as you might expect. By and large, individual stock momentum is the driving force of performance following a reverse stock split. Meaning that if a company’s stock price was heading south in the first place, it tended to continue. And if a company’s stock price was rising (but still remained below a dollar during the qualifying period) it continued rising. On average, a stock’s next-day performance following a split was roughly flat, though there were examples of both positive and negative outsized moves.

In summary then, a reverse stock split is a non-event. It’s a solution to an arbitrary problem, although a necessary one since trading OTC is suboptimal compared to being on the Nasdaq or NYSE American. Not surprisingly, companies do not regard reverse-splits as milestones, nor promote them as anything other than an administrative necessity. Case closed.


If you’d like to discuss the merits of a reverse stock split, or have another investor relations-related question, please contact our team today.

Authored by: Laurence Watts, Managing Director, Gilmartin Group

2024 Biotech Outlook

This past Wednesday, January 31st, Gilmartin Group’s Managing Directors, Laurence Watts and Stephen Jasper hosted a webinar with Jefferies’ Michael Brinkman, Managing Director and Joint U.S. Head of Biopharmaceuticals Investment Banking, and Charlie Glazer, Managing Director and Head of Healthcare ECM to discuss recent trends in the biotech capital markets and outlook for 2024.

Moderators:

  • Laurence Watts, Managing Director, Gilmartin Group
  • Stephen Jasper, Managing Director, Gilmartin Group

Speakers:

  • Michael Brinkman, Managing Director, Jefferies
  • Charlie Glazer, Managing Director, Jefferies

KEY TAKEAWAYS

2024 Biotech IPO Market Outlook:

Jefferies believes the biotech bear market is over as the panelists are seeing broader investor optimism across the sector due to increased macroeconomic visibility with a preference for later-stage, de-risked programs. Jefferies was a bookrunner on more than half of the 19 biotech IPOs last year and noted that the IPO market for biotechs hasn’t necessarily been closed, rather the bar for quality deals was set high. That bar is slightly lower today, and looking ahead to the rest of 2024, the panelists believe IPO activity can double from 2023 levels.


A New Class of Biotech IPOs

Jefferies doesn’t expect to see the market return to 100+ IPOs as seen in 2021, which the panelists viewed as unsustainable, as investors today are much more deliberate about the way they invest. For biotechs, clinical news flow drives market price, and the later-stage a company is, there is a lower probability of failure/negative data. Investors are looking for biotechs with promising late-stage data (e.g., CG Oncology), strong proof-of-concept data (e.g., Cargo Therapeutics) or a de-risked pre-clinical program (e.g., Apogee Therapeutics). The panelists expect to see continued investment in the oncology space, particularly in radiopharmaceuticals and ADCs, and increased interest in the autoimmune and I&I space, while gene therapy has fallen out of favor amongst investors.


A New Class of Biotech IPOs

Jefferies doesn’t expect to see the market return to 100+ IPOs as seen in 2021, which the panelists viewed as unsustainable, as investors today are much more deliberate about the way they invest. For biotechs, clinical news flow drives market price, and the later-stage a company is, there is a lower probability of failure/negative data. Investors are looking for biotechs with promising late-stage data (e.g., CG Oncology), strong proof-of-concept data (e.g., Cargo Therapeutics) or a de-risked pre-clinical program (e.g., Apogee Therapeutics). The panelists expect to see continued investment in the oncology space, particularly in radiopharmaceuticals and ADCs, and increased interest in the autoimmune and I&I space, while gene therapy has fallen out of favor amongst investors.


Pharma M&A is Likely to Continue

The wave of pharma M&A is expected to continue, especially as big pharma is faced with imminent patent expiration in the next five years. The panelists noted that there are several large companies that have significant holes to fill, and those that have large programs (e.g., Lilly, Novo) are actively spending their profits on M&A. Jefferies doesn’t expect to see too many mega-deals, especially given the FTC’s aggressive proposed M&A guidelines. That said, the panelists expect any company with promising Phase 3 data will get snapped up, so long as valuations aren’t over-inflated.


Supportive Macroeconomic Backdrop

Overall, Jefferies sees a favorable macroeconomic backdrop for the biotech capital markets due to increased visibility around rate cuts. The panelists noted that the expectation for rate cuts is enough for generalists to start moving from an underweight position to an equal-weight position in biotech, and don’t believe the timing or number of cuts will have a material impact. The panelists added that they don’t expect the presidential election to have a significant impact on the biotech sector.


Gilmartin Group has deep experience working with both private and public companies in biotech and across the healthcare space. For more information about how we strategically partner with our clients, please contact our team today..

Authored by: Claire McCardell, Associate Vice President, Gilmartin Group

Key Sector Takeaways Out of JPM 2024

Last week was a productive and efficient return to the J.P. Morgan Healthcare Conference held in San Francisco. The annual event reunited fervid participants and fostered meetings among investors, analysts, bankers and strategic corporate teams across both public and private clients. At Gilmartin, we see this conference as the first look into the upcoming market environment, and the positive response to results and guidance has us looking ahead to investor expectations for 2024. In this blog post, we’re breaking down our key takeaways across the Medtech, Biotech, Tools & Diagnostics and Digital Health/HCIT sectors.


MEDTECH KEY TAKEAWAYS

MedTech Focus Areas During the Week: The news of the week was Boston Scientific’s (BSX) acquisition of Axonics (AXNX) for 11x EV/2023 sales (~8.5x EV/2024 consensus sales), met with widespread positive reception. Investors are optimistic that further M&A at above-market multiples could ignite a return toward modestly higher sector-wide valuations. Among large-caps at the JPM conference, Johnson & Johnson (JNJ), GE Healthcare (GEHC), and Edwards Lifesciences (EW) indicated heightened interest in growth through acquisitions, ideally through assets that are both revenue and margin accretive. 

Risk-On Appetite Improving: We saw strong meeting demand across private, public, emerging growth, and value companies at our Gilmartin event at Hotel Nikko. For many client companies, investor interest was the highest it has been in over 3-6 months, with investors now leaning into diligence on new ideas. With modestly better market performance and hopes of lower rates on the horizon, it’s clear that risk appetite is improving and growth companies, while not yet back in favor, are once again benefitting from some inflows.

Pre-Announcements & Guidance: What did we learn?

  • Over 60% of scaled SMID MedTech businesses preannounced Q4 revenue, a consistent rate with the prior year. The vast majority of pre-announcements beat consensus estimates, with an average beat of 5%. 
  • Of companies that pre-announced, 40% provided 2024 revenue guidance, up from just ~30% of companies last year. For example, Inspire (INSP) and RxSight (RXST) provided 2024 revenue guidance despite not providing guidance last year.
  • On average, companies initiated guidance at or slightly-above 2024 consensus estimates.

LIFE SCIENCE TOOLS & DIAGNOSTICS KEY TAKEAWAYS

Life Science Tools/Dx themes coming out of J.P. Morgan: We sensed improved optimism for the sector coming out of the conference this year. J.P. Morgan shared in their recap that Danaher (DHR) was the most requested company for 1×1 meetings at the conference (over large cap pharma), and 5 out of the top 25 most requested companies and 10 out of the top 50 companies were in the tools/dx coverage universe. Similarly, we saw very strong demand for meetings across private and public company clients at our Gilmartin event, with many companies seeing the strongest level of inbound interest they have seen over the past several months. As 2024 progresses, we expect to see a rise in activity in M&A deals and capital-raising by mid-2024.

Continued focus on the bottom line. For SMID cap growth, one thing that is becoming increasingly clear is the bifurcation between companies with a near-term (and believable) path to becoming cash-flow positive and those with significant capital needs on the horizon. Companies with less than two years of cash continue to message cost cutting and focus on extending their cash runway.

Pre-Announcements, guidance & trends heading into 2024. Over 40% of LS tools/dx companies that we track preannounced Q4 revenue, higher than prior year trends. The vast majority of pre-announcements beat consensus estimates, with an average beat of 9%. 

Commentary on 2024 was limited (6% of our tracked companies issued 2024 guidance alongside their preannouncement). That said, 2024 forecasts in LS Tools had been materially lowered at 3Q earnings following conservative outlook from a number of large caps. Commentary from tools players was consistent with messaging from 3Q earnings and, overall, 2024 is expected to be a below average growth year, with growth expecting to pick up in 2H stronger (driven by easier comps and anticipated macro recovery).


BIOTECH KEY TAKEAWAYS

As the industry converged on San Francisco there was an air of cautious optimism and even a day of sunshine to accompany a handful of M&A announcements to start the week. Large pharma continued to put their balance sheets to use with JNJ acquiring Ambrx (AMAM) for ~$2.0Bn (105% premium to prior close), MRK/Harpoon Therapeutics (HARP) for ~$680MM (118% premium to prior close), followed by two private deals GSK/Aiolos Bio for $1Bn upfront and $400MM in milestones and NVS/Calypso Biotech for $250MM upfront and $175MM in milestones.

Expectations for 2024 include a somewhat choppy market, with fits and starts of IPO activity before the election, though this is highly dependent on the anticipated rate cuts and further evidence of inflation tempering. In this environment, companies reporting clearly differentiated programs/data in large commercial opportunities will continue to be rewarded, yet there is an expectation that further cost savings measures and pipeline prioritization continues for some as cash runways are stretched. Overall, the mindset was significantly more positive than last year, the key will be maintaining the momentum.

Biggest Stories/Themes of the Week:

  • M&A Activity Remains Important Market Driver: Following a strong Q4 2023 that closed with a flurry of M&A announcements in the last two weeks of 2023 (BMY/RYZB, AZN/GRCL and BMY/KRTX), the activity continued in San Francisco. Importantly, large pharma signaled their willingness to conduct more deals, with AstraZeneca, Lilly and Merck as seemingly the most bullish. Disease areas that continue to be the hottest include oncology (ADCs, radiopharma), cardiovascular, metabolic and more.
  • IPOs Return: Six S-1 filings currently sit in the IPO backlog that will provide an important test of the health of the biopharma IPO market. Performance will be watched closely as companies evaluate their path towards an IPO.
  • Robust Competition: Despite the challenges acutely felt over the past two years, there are more biotech companies than ever before, competing for investors’ attention and support. The need to be clearly differentiated with the approach, clinical data, etc. is crucial in today’s market.

DIGITAL HEALTH & HCIT KEY TAKEAWAYS

Key Themes: AI investment was a major theme throughout the week. The discussion focused on both near term applications, like automating administrative burden, and longer-term use cases that could prove more transformative, like ambient clinical intelligence. Scrutiny of budgets across end-markets remains a key focus, especially in the context of a challenging labor market and delayed purchasing decisions, while strengthening utilization and pharma spend were noted as points for optimism in the space. Lower cost alternative care and virtual care modalities, along with growing demand for value-based care continue to be key themes. The election was often raised given its historical importance to the sector; however, the majority opinion is that healthcare is not likely going to be a top campaign issue.

Capital markets environment: The funding environment for the sector remains challenged as companies continue to balance profitability and positive cash flow with robust growth targets. The prevailing view is for an IPO window to possibly open towards the latter part of 2024, with a significant pipeline of scaled privates waiting to come to market. Once open, the durability of the IPO window will be another important indicator. Additionally, M&A was top of mind at the conference, as certain verticals are considered poised for consolidation and big strategics position themselves for acquisitions. The overarching sentiment was that of cautious optimism as capital markets activity is expected to pick up.

Looking Towards 2024

  • 2/3rds of digital health and HCIT companies issued 2024 guidance prior to the JPM healthcare conference, which was higher than past years, many highlighting macro concerns, elevated utilization trends, and budgetary constraints across end markets. Expectations heading into the conference were for higher medical cost trends and increased transparency especially around the pharma supply chain.
  • At JPM, another 1/3rd of companies provided visibility into 2024 for at least one metric, with most above Street expectations. Concerns related to higher-than-expected utilization trends, especially outpatient procedures; predictability of medical cost trends, especially within Medicare Advantage; and cautious optimism across HCIT end markets dominated much of the dialogue. Stock performance was mixed during the conference with HCIT names overall flat with wide variation while Services names were overall down modestly.

Gilmartin Group has extensive experience working with both private and public companies across the Medtech, Biotech, Life Science Tools & Diagnostics, Digital Health & HCIT. To find out more about how we strategically partner with our clients, please contact our team today.

Authored by: Marissa Bych, Principal, Gilmartin Group; Carrie Mendivil, Managing Director, Gilmartin Group; Nick Colangelo, Vice President, Gilmartin Group; Ryan Halsted, Managing Director, Gilmartin Group

Webinar Recap | ATM Usage by Biotechs at a Time of Depressed Valuation

Moderators: Laurence Watts, Stephen Jasper

Participants from Cantor Fitzgerald: Steve Aldridge, Sameer Vasudev

Gilmartin Group’s Managing Directors Laurence Watts and Stephen Jasper hosted a virtual webinar with Cantor Fitzgerald’s Steven Aldridge, Managing Director of Healthcare Investment Banking, and Sameer Vasudev, Managing Director and Head of ATM Capital Markets. The discussion centered around ATM usage by biotechs at a time of depressed valuations. Our key takeaways below:


Key Takeaways:

ATMs are Essential for Public Biotech Companies
ATM stands for at-the-market offering, which describes the issuance of stock shares by a public company to rapidly raise capital. A company can sell at their discretion, taking advantage of rising stock prices and selling incrementally. Offerings are spaced out and can last for as long as a company wants. They tend to have significant advantages over traditional follow-ons because there is no set number of shares sold at a set price, affording the company flexibility. Every biotech company that will need to raise money should have an ATM in place. Greater adoption of ATMs has occurred from small-cap to large-cap companies over the past decade, as management teams begin to understand the ease of creating and using ATMs. 

ATM Utilization is Increasing
In the past few years ATM utilization has overall increased, however the past year in particular witnessed a decrease in ATM usage due to the reduced stock prices. While many biotech companies have put ATMs into place, it remains challenging to convince some boards to utilize them. Cantor predicts that as share prices recover and cash balances decrease, ATM utilization will rebound. Previously, they had mostly been used by hedge funds but are now being adopted by other funds, including both domestic and global investors.

Splitting ATMs Across Multiple Banks Should be Approached with Caution
While Cantor will participate in joint ATMs, they do not recommend it. Multiple banks being involved increases the risk of leaked information, which can be negative for a company’s stock price and financing options.

ATMs Provide Flexibility Around Clinical and Corporate Milestones
As most biotechs do not have revenue, earnings are often considered non-material events. Although the management team may have a personal trading blackout around quarter-ends, an ATM can operate through earnings. However, once a company is in possession of data, or far along in corporate partnering discussions, they would likely need to pause their ATM use.

Working with a Bank on an ATM can give the Company Access to the Full Suite of a Bank’s Services
Cantor is willing to provide comprehensive services to the companies they work with on ATMs. For them, ATMs represent an opportunity to build a long-term relationship with the company.

Be Ready to Take Advantage of Financing Options which will Change Rapidly as the Macro Environment Shifts
With an unpredictable and fast-moving capital markets environment, biotechs need to be ready to raise money when given the opportunity. ATMs can help companies take advantage of high-volume trading days. Despite some recent recovery in pricing, small-caps have largely been left out of the bounce back, but with more investors willing to put money to work, the financing strength of biotechs will increase as positive data and value-driving events occur.


Gilmartin Group has deep experience working with both private and public companies in Biotech and across the healthcare space. For more information about how we strategically partner with our clients, please contact our team today.

Authored by: Henry Diamond-Pott, Analyst, Gilmartin Group

Webinar Recap | The JPM “Post-Conference”: Medtech Insights and 2023 Expectations

Earlier this week, Gilmartin’s Founder & CEO Lynn Pieper Lewis hosted a webinar with J.P. Morgan’s Annie Wernig (Managing Director, Healthcare Investment Banking) and Benjamin Burdett (Managing Director, Healthcare Equity Capital Markets) to discuss insights, trends, and 2023 expectations for public and private MedTech companies. Here are our key takeaways:


Key Takeaways:

There seems to be a cautiously optimistic tone around the MedTech industry and an increased focus on private companies and opportunities

  • Early sentiment entering the year was positive – during the JPM conference in January, ~30 MedTech companies pre-announced results or provided directional color with many revenue consensus beats supported by optimistic management tones
  • Importantly, investors are also engaging in fundamental analysis across both large-cap and earlier-stage companies, particularly on the private side
  • Overall, while a degree of market volatility is expected to remain at least through the first half of the year, 2023 is starting off with increased optimism among investors with both macro and micro-driven tailwinds expected to continue through the year

M&A, IPOs, and follow-on offerings may be more prevalent in 2023 vs. 2022

  • We have already seen a few notable M&A and fundraising announcements in 2023:
  • This trend is expected to continue, particularly as MedTech valuations further stabilize and access to capital at terms remains
  • However, ongoing volatility can still make it difficult for parties to align on valuation
  • For M&A, we are seeing incrementally greater focus on companies or assets that are close to breakeven or have a clear path to profitability
  • For IPOs, while the specific timing of a window opening is up for debate, there is an expectation for a medium amount of activity in 2023, with the first wave including more scaled companies that will likely set a sense of confidence for others


Investors generally expect companies pursuing an IPO to have ~$100mn in revenue (or a strong execution path) and a cash runway to achieve break-even

  • There is no hard rule on reaching profitability at a specific revenue threshold as there remains an appetite for growth companies if they can scale to profitability efficiently
  • Bottom line, it is important for private companies to maintain access to capital and demonstrate a strong execution path


Privates can start to engage with institutional investors ~18-24 months before a potential IPO to build upon their investment story and strengthen relationships

  • You do not want to be on the verge of going public and not have talked to investors, and 18-24 months before a potential IPO is a good timeframe to begin having those discussions
  • If you are further out from an IPO, having some forward-looking information could be beneficial
  • On the other hand, if closer to an IPO, you need to be sure that you can execute on what you disclose


Public companies can differentiate themselves by meeting/exceeding expectations (guidance), messaging effectively, and showing a path to profitability if possible

  • Setting and delivering against realistic expectations is important – inflated expectations have short-term benefit but a long-term risk of value destruction
  • At the same time, don’t forget to prioritize IR and develop relationships with the types of investors that are focused on your sector


Implementing a shelf registration (Form S-3) is encouraged, and generally viewed as good corporate housekeeping


We are still seeing a lot of volatility in the market, and it is smart for companies to take an opportunistic approach to raising capital

  • Given the amount of risk in the broader market today, understanding your options is important, and it is prudent to think about capital raising opportunities early on and prepare beforehand where possible

Gilmartin Group has deep experience working with both private and public companies in MedTech and across the healthcare space. For more information about how we strategically partner with our clients, please contact our team today.

Authored by: Elizabeth Sparicio, Analyst, Gilmartin Group

Key Sector Takeaways Out of JPM

Last week was a welcomed return to the in-person J.P. Morgan Healthcare Conference held in San Francisco each January. The annual event reunited fervid participants and fostered meetings among investors, analysts, bankers and strategic corporate teams across both public and private clients. At Gilmartin, we see this conference as the first look into the upcoming market environment, and the positive response to results and guidance has us looking ahead to investor expectations for 2023. In this blog post, we’re breaking down our key takeaways across the Medtech, Biotech, Tools & Diagnostics and Services/Digital Health/HCIT sectors.

Public Medtech Key Takeaways

Key Takeaway: Macro dynamics improve and stabilize, setting the scene for recovery within the MedTech sector

Context: Underperformance, market volatility, and general unpredictability complied a mixed bag for companies in 2022, but the MedTech sector looks ahead to a more positive 2023 after a successful conference.

Additional Thoughts: Most companies delivered in-line to better-than-expected results as procedure volume recovery led to positive trends within the recovering MedTech sector and provided early visibility into an improved 2023. While some uncertainty remains, the space seems to be looking ahead to a healthy year.
Why this matters: Sentiment is a crucial indicator of investor interest and appetite and now is the time to set the stage, have conversations and execute goals.

What’s needed? Market recovery and increased clarity on the direction of the market. While procedure volume recovered and staffing shortages lessened, many held off on providing initial 2023 guidance or published conservative ranges to account for unpredicted volatility.

  • FX, inflation, supply chain, and China concerns are still looming and remain top of mind, and investors will look to Q123 for clarity.

In the meantime, growth remains essential, and there is a renewed focus on profitability or a pathway to it. Investors remain interested, engaged, and patient and will keep focusing on continued growth within the sector. Setting achievable expectations and upfront communication to enable future beats and raises is key for companies looking to capitalize on upside potential.

What investors are looking for:

  • Execution – clear communication of expectations and outperformance of goals
  • Continued market recovery – stabilization/improvement of macro trends will be critical to a healthy 2023
  • Profitability or a clear plan towards it

Private Medtech Key Takeaways

Key Takeaway: Incremental buzz building around the most mature private medical device companies with M&A likely a key 2023 theme

Context: 2022 marked by volatility, fewer private financings with many valuation contractions, no meaningful non-spin IPOs.

Additional Thoughts: As the gap in bid/ask valuation expectations appears to remain wide, companies are mostly “heads down” in execution mode as they bolster their investment theses and prepare to move opportunistically to raise private capital, move to an IPO process, or consider strategic options.

At Gilmartin we see the list of “public ready” private device companies already long and continuing to grow with many eyeing a window that may be open as soon as mid/late-2023 for first movers, and more broadly in 2024 (when companies more likely to get credit for FY25 expectations).

Why this matters: Time/attention of key investors increasingly at a premium and relationship building now will pay dividends in terms of reducing IPO execution risk.

What’s needed? Further clarity on Fed action cadence/inflation and the ability for U.S. economy to “soft land” as well as avoidance of exogenous geopolitical and macroeconomic headwind events will remain critical as investors and bankers eye the VIX and further upswing in risk-on sentiment.

  • Clarity on “time to exit” will further de-risk private financings, particularly for crossover investors who seem to remain more focused on existing portfolios and fair-valued publics.

In the meantime, VCs are still fundraising with meaningful dry powder. In SF around the conference many seemed incrementally eager to put in real work (many have mandates to deploy “rain or shine”) with interesting companies beyond just relationship development.

What investors are looking for:

  • De-risked (regulatory, reimbursement, TAM) platform technologies with upside potential over medium term.
  • Strong commercial execution and supercharged growth (50%+) despite challenging macro environment over last 2 years.
  • High level of predictability in model over medium run.
  • High margins with near-term path for EBITDA positive increasingly important – this may inform which companies move first towards an IPO.

M&A: Consolidation (transformational & tuck-in) likely a key theme for 2023 and 2024 as less mature private companies with interesting assets and significant potential TAMs but dwindling capital look to M&A to deliver long-awaited shareholder value.

  • Go Deeper: Shockwave Medical Announces Agreement to Acquire Neovasc

Biotech Key Takeaways

Key Takeaway: Bankers are keen to emphasize that Big Pharma is motivated by filling gaps in their portfolio (relating to patent expiry, etc.) rather than opportunistic buying at what most would consider bargain basement prices. The biggest opportunity for rapid value creation is among undervalued small/mid cap companies, which are already starting to show some signs of life at the start of the year.

Additional Thoughts & Context: When you’ve reached rock bottom, there’s only one way to go, and that’s up. Life sciences M&A activity remains near historic lows, with a handful of deals announced early in the week, and expectations for a continued anemic environment for consolidation. All deals ranged ~$1-1.5B and went for major (~100%+) premiums, perhaps a more encouraging sign entering 2023, compared to the lower premiums observed in 2022. Acquirers continue to highlight the attractiveness of the rare disease space (as well as CV disease).

What Biotech Investors are Looking for:

  • In the biotech world, we all know that data is king…but what kind of data? In the pre-COVID era, biotech investors were more willing to take risks on preclinical stage platform companies with cutting edge science. In today’s environment, cool science simply won’t make the cut as investors seek to fund de-risked companies with clinical data.
  • Investors have emphasized that the bar for capital allocation into private companies is higher now than it has ever been. Investors with optionality are pivoting their focus to the public markets.
  • Positive data and drug approvals continue to play a significant role in value creation and upward movement in stock prices in 2023.
  • Despite the chaotic market over the past three years, Sofinnova Partners Chair and Managing Partner Antoine Papiernik believes biotech is still in a much better position than it was a decade ago.

Tools & Diagnostics Key Takeaways

Key Takeaway: J.P. Morgan engagements were exceedingly positive across the Tools & Diagnostic sector, leaving an increased appetite for bolt-on acquisitions to consolidate a fractured market.

Additional Thoughts & Context: Headed into the conference week, sentiment was largely subdued for the Tools and Diagnostics sector, as investors weighed the economic backdrop and other macro factors against companies’ fundamental business outlooks. Against that backdrop, the sector provided predominantly positive updates for Q4 of 2022 – with nearly three-quarters of the companies preannouncing messaging. Looking ahead however, companies were less forthright on the outlooks for the year, with only a handful providing forward guidance for 2023. The reluctance to provide concrete guidance metrics for 2023 is unsurprising in our view, given the persistence of various factors including inflation, China uncertainty, COVID, and the state of the global economy – in turn creating uncertainty in sales cycles, geographic expansion, and capital markets activity. For growth companies in particular, investor focus remains on cash conservation/extension and, as applicable, paths toward commercialization/revenue and profitability.

Presentations from industry leaders highlighted financial flexibility to fund current business growth as well as strategic M&A opportunities supported by strong balance sheets and often a chest of cash on hand ready to facilitate acquisitions. Across the table, sellers and investors alike remain disciplined to make sure these assets ultimately end up in the hands of the best acquirer with proven management teams that will drive long term value growth and thus, willing to be flexible on upfronts for earnouts. Following the myriad of meetings last week, we came away encouraged by the fact that investors and management teams were aligned in crafting pragmatic structures that will ultimately benefit both buyers and seller

What Tools/Dx Investors are Looking for:

  • Clarity on sales cycles and business pipelines given economic backdrop
  • Impact of macro factors – China uncertainty, COVID, inflation – on operations, and active efforts to address those persisting
  • Activities to manage cash conservation and extend runway
  • As applicable, paths toward commercialization/revenue and profitability

Tech-Enabled Healthcare: Services/Digital Health/HCIT Key Takeaways

Key Takeaway: For tech-enabled healthcare and services, JPM started with a deluge of news flow (aligning with the atmospheric river we faced); but for the takeaway on preannouncements and 2023 guidance, companies were largely in line with expectations and included a few beats.

Context: With the macro backdrop of recessionary concerns, inflation, budgetary constraints, tight labor markets, this near-term caution was somewhat expected. Once the conference started, the sentiment turned more positive based on the solid fundamentals of the sector, the availability of strategic options and longer-term outlook.

Additional Thoughts: There was strong representation across the sector with roughly 100 companies participating in the space, ~60% of which are public and ~40% private. Notable sub-sectors included primary care provider groups; behavioral health; chronic disease management; care coordination; physician enablement tools for better engagement, workflow solutions and women’s healthcare groups.

What Investors Are Looking For & Key Themes from the Public Sector:

  • M&A – top of mind for companies with strong balance sheets prioritizing objectives to broaden clinical capabilities, solidify geographic footprint and/or enhance strategic partnerships
  • Importance of ROI amid the macroeconomic backdrop
  • Restructurings and divesting less profitable businesses to expedite pathways to positive cash flow and to extend cash runway
  • Clinical labor constraints persisting with many provider groups expecting labor costs to remain a pressure point; however, many citing deceleration in wage inflation compared with past years
  • Regulatory overhang around Medicare Advantage (MA) suggesting some potential reimbursement risk into 2024
  • While early innings for value-based care (VBC), continuing growth across capitated providers and companies investing in risk bearing capabilities
  • COVID impact waning since December, including on utilization

What Investors Are Looking For & Key Themes from the Private Sector:

  • Investors eyeing 2H 2023 for a re-opening of the IPO window with an expectation for further correction to private valuations, especially late-stage, to first catch up with public markets
  • High growth companies messaging shift to profitable growth as primary focal point rather than prior emphasis around growth at all cost
  • Gross margin profile to be key bridge to EBITDA profitability pathway
  • More non-financial KPIs (e.g., patient/member engagement metrics, clinician retention rates, workflow productivity measures)

Conclusion & Final Thoughts

Overall, we come away from the week incrementally encouraged by the state of the sector given the largely positive Q4 updates, while awaiting further clarity on how the space views the outlook for 2023.  

2022 saw volatility and uncertainty across all sectors, putting many investors on the sideline, but early looks at 2023 provide insight into what a shifting landscape could look like assuming recovery continues.

There has been a very broad reshuffle of talent across banks and funds that has fundamentally changed the landscape of key players since the ’19-’21 cycle that underlines the need to plan well ahead of time for an IPO. 

Although one never really knows where rock bottom lies, optimism is in the air. 1H23 is expected to see some follow-on offerings, PIPEs and private financings, with the IPO market possibly reopening in 2H23, subject to recovery in asset prices, an easing of geopolitical tensions, an end to U.S. interest rate increases. 2023, let’s go.  

To learn more about how Gilmartin strategically partners with our clients, please contact our team today.

Authored by: David Holmes (Managing Director), Alex Khan (Vice President), Kiki Patel (Principal), Brian Johnston (Principal), Hannah Jeffrey (Associate), Ryan Halsted (Managing Director) & Ji-Yon Yi (Vice President)

4 Things to Look for at JPM 2023

After a two year COVID-related hiatus, healthcare executives, investors, research analysts, bankers, and venture capitalists are once again headed back to San Francisco to meet with corporate management teams and greet old friends. While COVID-19 has somewhat loosened its grip on the U.S., its repercussions are still being felt in every industry, especially healthcare. Throughout the next week, tens of thousands of corporate presentations and 1×1 meetings will occur within a quarter mile of Union Square—most (if not all) of which we expect to touch upon these four topics:

  1. The U.S. economy
  2. Hospital staffing
  3. Foreign exchange rates
  4. 2023 financial guidance

The U.S. Economy

Starting with the elephant in the room, the state of the U.S. economy. In the first quarter of 2022, the federal funds rate was approximately 0%, and the Federal Reserve continued stimulating the economy by buying billions of dollars of bonds every month to ward off a potential COVID-related slowdown. Fast forward to today, the Federal Reserve has increased rates seven times in the last ten months to a rate of 4.50% as it tries to slow the overheated U.S. economy. Based on the Market Probability Tracker from the Federal Reserve Bank of Atlanta, the probability of an additional rate hike of 25 bps on March 13, 2023 is 92%, which would move the federal funds rate to a level not seen in over 15 years.

The question on everyone’s mind is, has the Federal Reserve raised rates so quickly that a recession is inevitable? According to a recent Washington Post survey of eight major banks, 75% of the participants predict a mild to modest recession starting sometime in the early spring or summer. In contrast, 25% believe the U.S. will “narrowly avoid” a recession. Recession or not, the rapid increase in rates has helped to lower inflation rates, including gasoline and food prices. Unfortunately, higher interest rates also typically lead to lower job openings, home sales, and equity valuations, all of which have occurred. With that in mind, investors will be listening very closely to the comments made by corporate management teams to help determine if the U.S. economy is destined for a 2023 recession.

Hospital Staffing

During the third quarter’s earnings cycle, over half of the 75 medtech companies we track cited a shortage in hospital staffing or the generic “macroeconomic headwinds” as a factor for a current or potential slowdown in sales. While hospitals typically deal with worker burnout and staff turnover annually, COVID has exasperated these issues. This phenomenon, coupled with increasing wages, has created problems for hospitals nationwide. With limited staff, hospitals have no choice but to postpone certain elective surgeries in favor of emergency procedures or surgeries with higher returns. As a result, we expect hospital staffing will be a hot-button question next week, and we will track this issue closely.

Foreign Exchang Rates

Starting in May 2021, the U.S. Dollar Index increased over 25%, peaking in late September 2022 at 114.10. While a strong dollar is great for companies looking to purchase foreign goods in a local currency, it hurts companies that sell their products in foreign currencies, as they must convert these foreign sales back to U.S. dollars. Throughout the third quarter earnings cycle, many of the larger healthcare companies mentioned the strong U.S. dollar as a reason for slower year-over-year revenue growth. Fortunately for these companies, the U.S. Dollar Index has decreased approximately 9% from its September high. While predicting foreign currency changes is best left to the experts, we expect most large healthcare companies attending the J.P. Morgan Healthcare Conference to call out foreign currency exchange rates during their presentations and 1×1 meetings.

2023 Financial Guidance

Last and certainly not least, 2023 financial guidance. First, the data. Based on the companies we track in the Medtech and Diagnostics sectors, the trend of pre-announcing financial results and providing forward guidance increased before the COVID-19 pandemic. However, this trend reversed over the past two years. As a reminder, the past two J.P. Morgan Healthcare Conferences have been conducted virtually.

  • 2016: 23% pre-announced; 9% provided guidance for the upcoming year
  • 2017: 28% pre-announced; 11% provided guidance for the upcoming year
  • 2018: 39% pre-announced; 17% provided guidance for the upcoming year
  • 2019: 38% pre-announced; 17% provided guidance for the upcoming year
  • 2020: 27% pre-announced; 14% provided guidance for the upcoming year
  • 2021: 23% pre-announced; 11% provided guidance for the upcoming year

In the past, we have advised companies to consider factors like the finality of the financial results and investor preference for consistency before pre-announcing and providing forward guidance during the week of the J.P. Morgan Healthcare Conference. However, we think this year is different based on the previous three topics we have discussed, and we expect the number of companies providing 2023 financial guidance could be less than 10%. For those companies that do, investors will be listening intently to help formulate their own thoughts on what 2023 could mean for healthcare stocks.

Conclusion

Next week, San Francisco will once again be overrun with healthcare investors, analysts, bankers, and corporate management teams overpaying for food, drinks, and hotels, all the while hoping to hear incremental information to help shape their investment decisions for 2023. Bring an umbrella.

Have fun, stay safe, and here’s to a better market in 2023!

Authored by:  Greg Chodaczek, Managing Director, Gilmartin Group

10 Tips for a Better J.P. Morgan Conference

JP Morgan 2023 is right around the corner. Readjusting to attending the conference in-person can be a bit daunting. To help spark your muscle memory and prepare you for a successful conference, we’ve pulled together our top 10 tips & tricks to a better, more efficient and valuable JPM week.

1 | If you’re going to refresh your deck, do it now, not during the first week of January when everyone’s sprinting to the finish line and dealing with rush prices and high stress levels. Messaging and thoughtful graphics take time, so be sure to carve out an appropriate amount of dedicated time in your schedule over the next week to finalize your presentation deck with your IR and communications teams.

2 | Focus on quality over quantity. Schedules for JP Morgan fill up quickly—prioritizing your meeting list with your IR team is essential to making sure your time and efforts during the week are as valuable as possible. Focus on buy-side investors and target funds you were unable to meet with on your last roadshow. Use residual space in your schedule for your covering sell-side analysts and those within your space who don’t yet cover your company. Strategic prioritization will allow you to have fewer conflicts, less exhaustion and likely a happier week.

3 | Have something new to say. JP Morgan is a time where many companies will display new strategies, revamped messaging and lay out next year’s milestones. To avoid falling flat in investor meetings, we recommend bringing something new to the table. No one wants to walk into a meeting to hear the words, “well, nothing much has changed.” A quick tip for remaining Reg FD compliant: consider putting out a “cleansing press release” ahead of time so that you’re free to talk about whatever you need to during meetings.

4 | Do the necessary health and wellness prep and packing. Get your flu shot and COVID booster in advance and bring painkillers, an umbrella and comfy pair of shoes with you. Nothing is worse than taking meetings when you are ill or aching, and with 2023 being the first in-person JPM since COVID, bringing your cough and cold into meeting rooms will largely be frowned upon.

5 | Have something to look forward to every day. It’s no secret that J.P. Morgan can be a daunting week and take a toll mentally and physically. Be sure to take care of your emotional wellbeing to avoid burning out too early in the week. Take time to hit the gym, go to a cocktail reception, meet up with an old friend or carve out 30 minutes of down time to rest. Being in the best mental and physical space will ultimately translate over into more productive, efficient meetings.

6 | Don’t drink too much/make sure you get enough sleep. Meetings can be tough to sit through as the week goes on, especially if you’re not the principal speaker. Maintaining a healthy balance between having some fun at networking receptions and getting enough sleep is essential. Try your best to look alert and interested in even your fifth or sixth meeting of the day. The overall optics of your management team during investor meetings can make all the difference.

7 | Optimize logistics and be amenable to going off-site. Companies aren’t the only ones who secure dedicated JP Morgan meeting space. Some financial institutions will only take meetings in their own reserved space or in their San Francisco office locations. Ensure that your IR team or scheduling manager is optimizing time by arranging your on-site meetings on the same day, and reserving space on other days for traveling around Union Square to meet with funds and investors in their dedicated meeting spaces.

8 | Don’t arrange your BoD meeting for JP Morgan week. Why make the week any more difficult than it has to be? There are plenty of other weeks in January. Board meetings take a lot of preparation, work and effort. Despite being “all in the same city at the same time,” a better use of energy and effort might be to catch-up with your board in a more informal setting over dinner or drinks and save the formal board meeting for later in the month.

9 | Consider only going for 1-2 days. Make efficient use of your time by limiting your attendance. This is also a great way to avoid extra costs, burnout and exhaustion. You can maximize your efficiency and minimize your down time by opting for 1-2 days. This goes without saying, but you can make yourself and the larger management team available during the rest of January to anyone whose schedules were unable to accommodate a meeting during your days at the conference.

10 | Use a mobile app like Expensify to track your expenses during the conference. Mobile expense apps make multi-day trips like J.P. Morgan so much easier. They save you the time and effort of going through all of your receipts when you get back to the office. Expense-tracking apps are quick, easy and mean that you can be done with classifying your J.P. Morgan expenses by the time you board your plan back home.

All-in-all, the JP Morgan conference takes an immense amount of planning, strategy and forethought. With decades of experience attending the conference, we hope that our Top 10 Tips & Tricks to a Better JP Morgan helps to further prepare you and your team for an intense week of meetings. To learn more about how Gilmartin strategically partners with our clients, please contact our team today.