Industry Trends

How long will the impacts of COVID-19 be felt in partnering and deal-making?

For how long do you expect current record levels of investment to be sustained?

The start of 2020 has seen record levels of IPOs as a large number of new biotechs have been able to raise record amounts, while substantial investment is similarly entering the industry through venture capital and government financing. Respondents were largely split on whether this could be sustained, and how long for, as no consensus emerged. 52% suggested that IPO levels could be sustained into 2021 and potentially beyond, while the corresponding number for private/government investment was 58% – noting the continued funds needed to advance COVID-19 vaccine development.

What is the preferred method for biopharma to access external innovation?

The increased investment in the industry will in turn create more opportunities for deal-making with biopharma companies in the form of alliances, licensing and acquisitions. Respondents were agnostic as to the best way to unlock value via deal-making, with 75% indicating that the preferred deal structure depends on the asset and parties involved. Out of the single options, alliance was seen as the most attractive type by 14% - increasing to 20% amongst Asian respondents, while M&A was associated with disruption and value destruction.

For how long do you expect current M&A levels to be suppressed?

In terms of M&A activity, a stronger consensus emerged in terms of expectations for recovery, with relatively few expecting the lack of large-value deals to be reversed in the near future. Rather, 50% of respondents suggested it would be at least another 12 months before the biopharma industry returned to any semblance of the acquisition spree that characterized the end of the last decade. Specified reasons for the suppressed activity related to uncertainties surrounding pandemic recovery and the US election result, in addition to a focus on internal investment.

For how long do you expect current M&A levels to be suppressed and why? (Selected responses)

“Confidence will return in line with post-election and COVID vaccine availability.”
“COVID-19 is a (relatively) short-term worldwide problem for which all industry-partners (with knowledge and/or capabilities) are dedicated to find a solution. When the solution is found, we return to normal circumstances.”
“Due to the availability of capital, financing is an attractive to fund biotech R&D programs. M&As are challenged by high market valuations.”
“I do believe that the internal focus is in large due to the uncertainties brought by the pandemic. Once this is resolved, I don’t see any reason to believe that the M&A activities won’t return to the same levels they had prior to COVID-19.”
“In six months a solution to the COVID-19 pandemic should be on the horizon, therefore other business chances will come into greater focus.”
“M&A opportunities are still out there and many may see the recent hiatus in deals as a buying opportunity, especially where smaller but more promising assets have suffered delays in data accumulation and may be under financial pressure as a result.”
“Many companies are focused on keeping their current investments viable. I think due diligence in the post-pandemic era, at least in the short term, will be more arduous.”
“Once the winners and losers on the COVID-19 race are discovered, there will be a high dynamic on M&A to bring more specialization to the pharma industry.”
“Lots of larger acquiring companies have been reserved and cautious about making big moves, but we are the medical industry! Come on! We consolidate. I believe firms are already starting to say, "this isn't going away... this is the new normal... I better get on with my business." I believe by the time of January, JP Morgan meeting, we'll be back to some aggressive M&A activity.”

Which stage of development offers the sweet spot for balancing
validation, potential and risk?

In terms of the type of assets or companies under strongest consideration, clinical-stage products were seen as the most attractive. In particular, 21% indicated a preference for Phase II drugs at the proof-of-concept stage of development, while late-stage, early-stage and preclinical programs were viewed similarly. In general, 35% of respondents would consider all stages of development, incurring varying degrees of scientific validation, clinical risk and commercial potential depending on the asset in question.

Which geographic location in particular are you looking to partner with or invest in?

When comparing geographic locations to partner with or invest in, as expected, there was a strong preference to partner with or invest in North America – the 43% figure almost double that of Europe (23%) and far in excess of Asia (7%).