COVID-19's Market Impact Will be Transient for Life Sciences
Keith Bliss, iQ Capital
As the COVID-19 outbreak has halted the world, we are witnessing the life sciences industry come together and aggressively react to one of the gravest threats of our lifetime. The stock market’s reaction to the outbreak has been unprecedented with daily 1,000 point moves in the Dow Jones Industrial Average (DJIA) becoming standard fare, and market volatility levels not seen since the height of the global financial crisis in late 2008.
Regardless of current uncertainties, it is clear that COVID-19’s long-term market impact on the life science sector will be transient, as the industry remains on the forefront of value creation. Along with addressing a growing aging population, life sciences companies’ innovations remain key in driving future global economic growth.
In fact, when overall markets plunged last month when the severity of the pandemic in the U.S. became clear, biopharma equities began to regain some of their valuation that was lost during the first days of the outbreak; an early indication of the industry’s strength. Regeneron saw its shares jump 10 percent throughout the month of March, a time where the company, along with multiple other multinational peers, worked vigorously to bring the world’s first COVID-19 treatments to fruition. As clinical trials, such as Gilead’s Remdesivir, quickly progress with nods of promising data, investors are already beginning to see the value in these investments when compared to the industry at-large. The DJIA has lost 17 percent of its value for the year, while various Life Science indexes are only down anywhere from 2 - 6 percent for the year.
While a plethora of uncertainty regarding near-term market performance remains, there will be strong demand and robust appetite for life science investments in the coming months, as markets continue to stabilize and the world begins to move forward. Scientific innovation and investment into next-generation medicines has never been more appreciated than now, and investors are seeing the first-hand value of developing life-saving therapies. COVID-19 has shined a light on how the life sciences industry protects the world by creating a better and safer place for all.
Rise of Impact Investing
The investment community has been galvanized by impact investing in recent years. Prior to the COVID-19 outbreak, impact investing has soared, as sustainable funds raised $20.6 billion in new capital last year, which was nearly four times larger than the prior year. Combined with increasing measures to create value for all stakeholders, life sciences companies are well positioned to benefit from this investment approach. By increasing the standards of patient care, seeking higher inclusivity thresholds for trials, supporting ethical supply chains and integrating cutting-edge data analysis into tracking metrics, life sciences companies are advancing these measures to drive greater impact, as well as returns for all stakeholders.
Advancements in medical devices and oncology will remain at the forefront of the life science impact thesis. Artificial intelligence (AI) integration and technological developments continue to propel the world into a new age of innovation, and as a result, companies are producing products that are smarter, faster and better than ever, without being so invasive to the patient. Oncology has consistently been considered an attractive investment, due to the impact of what the bioscience promises. The oncology industry has gone through several decades of learning, discovering and developing cancer therapies and is now entering into the phase of consequential improvement. Finding better ways to overcome adversities, such as platinum resistance, is good for the patient, and good for business.
Robust Appetite for M&A Activity to Come
There will be strong opportunities on the backside of the COVID-19 crisis for companies with solid foundations. Large companies with good balance sheets will see the need for investing in opportunities to drive the demand for quality therapies, piggybacking off of a year of a significant increase in the amount of megamergers executed.
As a result, robust appetite for continued M&A activity is expected. Companies in seed rounds should be able to weather this economic storm, especially if they fundraised in 2019. For those who have recently fundraised, there is clear data that’s attractive to investors, and as the outbreak has indicated, that value will not change.
Over the past year, life science M&A activity totaled a historic $357 billion (as of Nov., 2019). It’s expected that the trend in megamergers and high-valued deals will continue, as companies look to optimize portfolios to further home in on specific therapeutic areas, increase near-term revenue and seek additional access to innovative resources. These fundamentals do not change in a post-pandemic world.
During a time where deal flow is stagnant as a result of rock-bottom market declines, biopharmaceutical companies generated over $16 billion in public and private transactions throughout the first fiscal quarter of this year. This was nearly a decade-high for the industry, with only the first quarter of 2018 raising more capital.
The ability to withstand these historic market pressures has only further propelled the industry’s value, which was already indicating encouraging projections. Over the past year, the number of drugs in the pharma pipeline grew by 6 percent, and industry R&D spend is forecasted to grow at a compounded annual growth rate of 3 percent over the next five years. Recently, two of the sector’s largest venture capital firms announced plans to invest a combined $2.5 billion in biotech companies, a testament to the value of the industry and a commitment to its future. These investments will help develop early-stage assets, as well as advance technological developments including machine learning and health security. It’s impossible to drive these innovations forward, and realize the future therapeutic benefit, without proper investment today.
The industry will remain on the forefront of finding, funding and developing the proper therapies and tools to not only fight COVID-19, but continue creating life-changing innovations day-after-day. The pandemic has further underscored this notion, as the industry has been collectively working at an unprecedented scale to discover new treatments and accelerate the clearance and delivery of existing therapies.
Keith Bliss is the Managing Partner and CEO of iQ Capital, a broker/dealer subsidiary of iQ Group Global, a global bioscience enterprise. He is a frequent media contributor and guest on CNBC, Fox Business, Bloomberg TV/Radio, Sky Business, Reuters and The Wall Street Journal, discussing global market commentary.