Biotech Market Update: H1 2021 in Review

Click here to read the previous biotech market update. 

Biotech investments have faced a fair set of challenges in 2021, in large part because the hope of getting back to business as usual can’t yet be fulfilled.

While the race for vaccines to meet the COVID-19 virus has been met, companies are still learning to navigate a world where the pandemic remains a reality.

In this recap of the first half of the year, the Investing News Network takes a closer look at what experts believe are biotech highlights for 2021 so far, and what’s coming up in the remainder of the year.

Biotech market update: Index turbulence shows change in perspective

In March, the NASDAQ Biotechnology Index (NASDAQ:NBI) went on a spiraling downturn, taking an US$85 billion hit following three weeks in a row of losses, according to a report from Bloomberg.

David Wagner, a portfolio manager at Aptus Investments, told the news outlet that investors were creating space after the rush toward biotech companies seen in 2020 as the pandemic generated interest in vaccine makers and other healthcare providers.

“All those other biotechs that were trying to find a vaccine, we have enough supply, we don’t need you anymore,” Wagner said.

Despite that March downturn, the biotech attention seen in response to the pandemic has significantly changed the outlook for the industry — a report from Deloitte indicates that COVID-19 has created interest and growth in the space that has yet to be accounted for.

“It will take years for us to fully understand the impact that COVID-19 has had on the industry,” Deloitte’s report, which focuses on this year’s global life science outlook, indicates. The firm argues that investment in areas beyond vaccination will be needed to advance science and research.

Biotech market update: Dealmaking returns, expectations strong for rest of year

Looking back to last year, the COVID-19 pandemic affected the status of merger and acquisition (M&A) deals in the biotech industry throughout the 12 month period.

According to professional services network EY, the final count for deals in the life science space in 2020 amounted to US$159 billion. That figure was significantly lower than the standardized US$200 billion per year usually seen in the space, a report from BioPharma Dive states.

There were 201 biopharma and medical device deals valued at US$123.3 billion in the first half of 2021, as per PwC. “There is a lot of capital and strong balance sheets in the industry, so companies are going to continue to use those to support their overall strategic initiatives,” Sky Milch, the firm’s US pharmaceutical and life sciences deals leader, told BioPharma Dive.

A report from RBC Capital Markets projects that M&A in the biopharma space will rise up in the back half of 2021 due to recent declines in valuations due to market conditions.

“Biotech stocks have dropped 9% so far, RBC noted, likely because of sales slowdowns during pandemic shutdowns and renewed pricing debates, the analysts said,” FiercePharma explains.

Biotech market update: The role of SPACs through 2021

The spread of a novel investment vehicle in the capital markets has also reached the biotech and healthcare space — special purpose acquisition companies (SPACs) have grown a major presence.

“You could raise US$100m in an IPO … But with a SPAC you can raise half a billion,” Jonathan Rothberg, an entrepreneur in the medical space, told Evaluate Vantage. In his opinion, the reasoning behind going for a SPAC instead of an IPO is that a SPAC can lead to more money upfront.

SPACs are an alternative listing model in which a company raises capital with a selection of investors based on the prospect of going out and acquiring its business instead of having it at hand. The company must undergo a qualifying transaction by a set deadline in order to become a standard publicly traded company; if the deadline expires, the money raised goes back to the investors.

Deadlines are a concern for SPACs, but there is also the possibility that investors will redeem their shares once a company has completed its qualifying transaction.

As Evaluate Vantage explains, fleeing investors have left some companies with a thin bottom line:

A particularly alarming case is the acquisition of Owlet by Sandbridge Acquisition Corp, which saw holders of 19.8 million shares — around 86% of the Spac’s public shares at IPO — back out. This meant that just $32m was left in Sandbridge’s trust account.

Parag Mallick, founder and chief scientist with Nautilus Biotechnology (NASDAQ:NAUT), told Evaluate Vantage that there are “large capital needs for pre-revenue companies” at the moment. And these needs could be fueling the SPAC model in the biopharma space.

“I can easily see Spac deals becoming an important market segment,” Mallick said.

Biotech market update: Investor takeaway

The back half of 2021 is expected to carry a collection of acquisitions as the busy season of investments heats up in the fall and near the end of the year.

In what has been a record year for IPOs, the NASDAQ celebrated hosting 98 percent of new biotech and pharmaceutical IPOs at the halfway mark of 2021. At the time, 49 biotech IPOs had been completed, resulting in US$8.8 billion raised. BioPharma Dive notes that the number of listings has continued to rise steadily, but the size of these deals is trending down.

As the Delta variant of the coronavirus spreads further and vaccine boosters gain traction, investors will also want to keep an eye on how COVID-19 developments impact biopharma in the months to come.

Don’t forget to follow us @INN_LifeScience for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.