Can the biopharma sector retain the investing momentum it saw in 2020 as generalists turned their attention to the space?
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.
What made 2020 so good for biopharma?
In a panel discussion titled “The Investors’ View: Where is the Money Going in 2021?,” experts began by explaining what attracted so much capital to the biopharma the space in 2020.
“Biotech has its booms, not because of those of us who have been devoted to biotech for 20 to 30 years — biotech has its booms when the generalist investor comes in, and then there’s an excess in capital,” said Samuels. “Of course, at times that can mean that it’s dumb money pursuing biotech companies, and in other times some generalists are savvy, wonderful money and they often are longer-term investors.”
Samuels explained that the prescient target of COVID-19 answers has helped the biopharma industry get a new marketing push in terms of emphasizing its value to investors.
“Part of the reason we got the attention from generalist investors and that funds flow is because from the moment of disease identification in Wuhan with COVID, from sequence to test to therapeutic and vaccine efforts, (there) was a staggering speed and pace and that brought the attention to the life science sector and what biopharma can really do,” said Nina Kjellson, a general partner with Canaan Partners. She was speaking in the same panel as Samuels.
While briefly discussing other ways the pandemic has affected biopharma, Mara Goldstein, managing director with Mizuho Securities USA and an analyst covering biopharma, explained that companies now have a better sense of the way clinical trials will be able to move forward in a COVID-19 world.
Goldstein said she recently spoke to a company working in oncology about the changes and limitations the US Food and Drug Administration is working with to make sure studies can go through.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.