Biopharmaceutical Sector Update:
Evolving Financing and Deal Environment
October 29, 2020
In this report, we examine the financing and deal environment for the biopharma sector in light of the ongoing COVID-19 pandemic. In preparing this report, we have analyzed data in the public and private financing markets and have also looked at the M&A market, and the Asian market.
Summary of key points:
- We remain in a COVID-19 pandemic. With spiking incidence numbers every day, a “new normal” appears likely due to rapid advances in real-time PCR testing and vaccines.
- Despite pre-election nerves in the NASDAQ Biotech Index, we remain near all-time highs in biopharma valuations.
- However, despite strong index performance many parts of the biopharmaceutical sector have not performed well — especially branded pharma companies working on reformulations.
- The number of SPAC IPO issuances in the life sciences sector has skyrocketed. SPAC IPO volume in Q3 2020 was basically the same as regular-way IPO volume.
- The returns to shareholders after SPAC mergers have been much better than returns following conventional IPOs and far better than returns following reverse mergers.
- We hypothesize that this can be explained by the certification value of having a top fund back a biotech IPO.
- We have seen more than $24 billion raised in new venture funds thus far in 2020, well above the $14.1 billion raised in 2019. The level of capital available for biopharma is unprecedented.
- The private debt market has softened with volume down by 7% and deal count down by 29% due to the uncertainty created by the markets. However, volume has started to normalize in October, reflecting stabilization of underlying credit market conditions.
- Global biopharma M&A activity in 2020 is recovering after a slowdown in Q1 and Q2 due to COVID-19 and following a record year in 2019 for pharma M&A. In 2020 the market buyers have continued to shift toward high innovation molecules, particularly new chemical entities.
- Japan in-licensing activity has increased as Japanese companies remain focused on global expansion with a high interest in innovation, especially in the areas of cell therapy, biologics, and gene therapy.
- China in-licensing activity has increased and the Chinese government is supportive of pharma innovation with new favorable regulatory policies expected in the near term. The global pharmaceutical companies are increasingly interested in China deals resulting in an emerging trend to out-license activities by innovative Chinese biotech companies.
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