Biopharma Hopes to Keep Generalist Investor Attention in 2021

After a monumental year for biopharma investment in 2020, how much of that momentum can the sector carry over into the new year? Market watchers are beginning to place their bets.

This year, the annual Biotech Showcase event went digital in the face of the global COVID-19 pandemic, with experts in the space meeting online to share the latest insider information with investors.

One immediately recognizable trend was how much of a push the biopharma industry has experienced thanks to a growing appetite from generalist investors. This was in large part due to the attention that drug development received last year — it led to a rush of initial public offerings (IPOs) and to the emergence of special purpose acquisition companies (SPACs) in the space.

In the SPAC model, a company will raise capital from a group of investors based on a plan to go into the market and pursue what is known as a qualifying transaction to begin business operations. SPACs have become a contemporary trend for companies across the board, not just in biopharma.

Speaking at a panel titled “The Year of the IPO and the Coming of Age of the SPACs,” Gabriel Cavazos, managing director for investment banking with SVB Leerink, said soon after finishing the last details on a deal in March of last year, he legitimately wondered if that was a wrap on business for 2020. It wasn’t.

Hosted by William Kolb, a partner at Foley Hoag, the panel covered how crucial the rise of SPAC public deals has been for biopharma investment. The talk also included Paul J. Hastings, president and CEO of Nkarta Therapeutics (NASDAQ:NKTX); Art Pappas, managing partner with Pappas Capital; Laura Shawver, CEO of Silverback Therapeutics (NASDAQ:SBTX); and Scott Platshon, principal with EcoR1 Capital.

Cavazos told the online audience that based on his numbers, 38 SPACs went public in 2020, with 31 currently still pursuing qualifying transactions.

In a separate online discussion, Camille Samuels, a partner with Venrock, said biopharma SPACs raised US$3.5 billion in 2020, while general biotech public ventures raised US$62 billion during the year.

She expressed some reservations about the rise of SPACs, but admitted that the investment model is most likely here to stay in the sector.

Similarly, Platshon foresees SPACs becoming a market tool that sticks around in biopharma, although he clarified that he does not expect SPACs to replace IPOs for companies going public.

Looking forward, Cavazos expects 2021 to bring a continuation of the grand performance seen by biopharma IPOs. He said that in 2020 the average size for IPOs in the space was US$193 million.

“By any measure, 2020 was a phenomenal year across the board, and frankly from a revenue, deal flow and profitability perspective,” Cavazos said.

When comparing IPOs and SPACs, the financial expert said that with IPOs companies have a marginally longer time to become ready for the challenges of the public markets.

“Whereas (with) the SPAC process you really need to have a high level of conviction that from a governance and audited financials (perspective), and just general company preparedness, you are ready to be a public company,” Cavazos said.