IPO Window, Recession, Trade War & More -- 5 Biopharma Finance Experts Share Their Perspectives For 2020
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
For the past five years, Life Science Leader has put together its annual outlook issue (published in December). And every year, we are grateful to have so many biopharmaceutical industry thought leaders willing to take part. This year is no different. But what do you do when you have more insight than can be squeezed into the limited space of our print issue? This was one of the drivers behind the creation of our increasingly popular Beyond The Printed Page online section of the magazine. This most recent installment involves the following five biopharmaceutical industry finance experts on what to expect in 2020 and beyond:
- Joseph Ferra, CFO, Syros Pharmaceuticals
- Adam Koppel, M.D., Ph.D., managing director of life sciences, Bain Capital
- Teri Loxam, CFO, SQZ Biotechnologies
- Kush Parmar, M.D., Ph.D., managing partner, 5AM Ventures
- Henrijette Richter, managing partner, Sofinnova Partners
Will The Biopharma IPO Window Close In 2020?
Teri Loxam, CFO, SQZ Biotechnologies:
We are always acutely aware of investors’ appetite to participate in financing deals, and to what degree. There has been a lot of chatter about the “window closing” in 2020, but from what we can see, financing deals for good science and novel ideas are still getting done, and we’re cautiously optimistic that the environment will remain open to healthy deals at the right valuations. As always, it will be important for private biotechs to think strategically about the right timing of any type of financing deal. However, if all the pieces are in place, there’s every reason to believe that investors will be excited to participate.
What Biopharma Deal Structures Do You Anticipate Gaining Popularity In 2020?
Henrijette Richter, managing partner, Sofinnova Partners:
When it comes to the M&A structure, my expectation is that we’re going to continue to see a number of early-stage structured collaborative deals. In these cases, pharma enters with a smaller up front, gets access to a few assets and gains a view of the platform’s capabilities while building strong relationships and trust, so that a much larger transaction is possible three to five years down the line. An example of this path is the recent deal between Gilead and Galapagos. In addition, we will continue to see deals where pharma companies buy early-stage platform startups with programs in areas of breakthrough science such as gene and cell therapy. Pharma has a constant need for both early and late-stage pipelines, which is the reason these deals will continue in the coming years. On a side note, I also think the increasing role of corporate investors will continue into 2020. It is one of the ways for pharma to gain access to interesting new scientific areas and technologies before going into a more expensive collaboration or buyout. One example is AbbVie Ventures’ investment in the immune-neuro platform company Alector, which was then followed up by a significant collaboration.
What Should Biopharma Executives Be Paying Close Attention To In 2020?
Joseph Ferra, CFO, Syros Pharmaceuticals:
Without question, with the upcoming elections in 2020, the cost of healthcare in the U.S. will again be front and center. As an industry, we need recognize that this is not a Democrat vs. Republican issue but a human health issue that will perpetuate regardless of who is President. In order to ensure our ability to develop innovative drugs and solutions, we need to develop a plan that takes into account the needs of all stakeholders of the healthcare ecosystem.
Likewise, as we sit here today, we are all waiting for new leadership at the FDA. The last FDA Commissioner demonstrated the importance of having a strong leader at the agency. It is a reminder that the office sets the tone for the agency and impacts important decisions that affect not only our industry but the ability to bring important new drugs to patients. It will be important in 2020 to see how the new leadership at the FDA will shift policy and focus.
Kush Parmar, M.D., Ph.D., managing partner, 5AM Ventures:
As for any major election year, what is happening in the beltway should be a central topic for many. Much of it will be noise and headlines lacking substance, but some of it could in fact set the stage for bipartisan reform with major implications for biopharma. I believe the complex topic of drug pricing will remain the headline when it comes to healthcare costs — it’s hard to imagine another topic where there is more bipartisan alignment, at least in principle. With our goal of improving human health in mind, the innovation-driven biopharmaceutical industry must evolve and advance the discussion by involving all corners of our industry —lawmakers, patients, companies, PBMs, and investors alike. On the positive side, we’ve seen continued progress including increased pricing transparency and innovative pricing models in the form of value and outcomes-based/responsible care. Furthermore, we’re encouraged by the increased participation of patient and advocacy groups — especially in the rare disease space — to both champion the patient and play a pivotal role in driving research forward when innovation is the only path to therapies. But our industry and our lawmakers need to clearly demarcate the issue of “bad actors” who may push no-innovation price inflations and anticompetitive practices, vs. the highly risk-taking biotech innovators who are transforming medicine and patient lives as we know it. The latter group are truly the ones that represent what is great about our industry, and we need to protect them, not stifle them.
What Financial Impact Do You Anticipate For Biopharma In 2020 Resulting From The Trade War Escalation Between The U.S. And China?
Adam Koppel, M.D., Ph.D., managing director of life sciences, Bain Capital:
Our hope is that there is no impact and that trade relations do not deteriorate between the U.S. and China. However, should the situation escalate, we would expect all financial markets to experience choppiness, volatility, and unpredictability. The Chinese market in life sciences is growing in importance and doing so bidirectionally: 1) supply of innovation and manufacturing to the global market; and 2) a growing source of demand for the global market. China is the #2 market worldwide by pharmaceutical sales, only behind the U.S. We are observing a dramatic increase in Sino-Western collaboration among innovators and investors to create new medical solutions. Global Phase 3 trials have started to incorporate patients from China. There has been a significant uptick of deal activities in the past few years for cross-border in-licensing and partnerships. Deteriorating relationships among our governments and business trade relations would likely have a deleterious effect on such partnerships and free flow of capital investments.
Parmar, 5AM Ventures:
Overall, biopharma has remained somewhat out of the spotlight when it comes to U.S. and China relations, until recently. In 2017 and 2018 we saw major investments from China into U.S. biotechs, and also several attractive partnerships between Chinese companies to U.S. biotechs. But this has cooled in 2019 as geopolitical tensions have increased and biotech has been brought more into the fold of strategic “competition” between the countries. For example, updated federal guidelines regulating foreign investment have highlighted the U.S. government’s sensitivity around patient genomic data or therapies that use genomic data for patient selection. Basic science and academic collaboration truly know no borders, and neither does the patient burden of global diseases — so the trade war escalation and its creep into biotech is dismaying. But I strongly believe that impactful science and great entrepreneurs in both countries will continue to advance biomedicine for the benefit of patients.
What Biopharma Sector Do You Find Most Exciting And Expect Big Things From In 2020?
Richter, Sofinnova Partners:
One area I find very interesting is the field of the innate immunity of the brain and whether affecting the immune system of this organ can alter the path of neurodegenerative disorders such as Alzheimer’s. One of the challenges with this area is the ability to get larger molecules/biologics across the blood-brain barrier. Thus, a small molecule approach will most likely be necessary here. Despite several Phase 3 failures in Alzheimer’s, I expect we will see an increasing number of companies with a small molecule strategy. Another area with several intriguing opportunities is neuropsychiatry, where a better understanding of the biology and a clearer stratification of patients can lead to clinical trials with an increased likelihood of a positive readout. While in oncology we will continue to see emerging companies in the immuno-oncology space, our interest will be directed toward companies with new modalities outside of the PD-1/PD-L1 axis and where we can see a path to stratify patients based on a biomarker strategy.
Are We On Our Way To A Recession, And If So, How Should Biopharmas Prepare?
Loxam, SQZ Biotechnologies:
On the company side, we cannot control the volatility of the market, but we can control our preparation for different scenarios in the macro environment. We need to be aware of what is happening and what potential changes to sentiments may come, allowing us to make the smartest business decisions possible. We, along with others in the biotech and investor communities have been focused on ensuring the industry as a whole is well funded going into any potential economic changes and being prepared for outcomes in the markets to still enable us to execute on our mission. At the end of the day, we cannot lose focus on our effort to transform the lives of patients.
What Companies Are You Paying Attention To And What Can Biopharma Learn From Them?
Ferra, Syros Pharmaceuticals:
There was a time, not so long ago, when GE was a bellwether for innovative management and forward-looking thinking. What happened? We’ve seen this before: A large organization became complacent and suffered from a lack of effective oversight and a drive for innovation. This is another reminder for all companies everywhere that we need to fight complacency. We need to remember that just because it worked before, doesn’t mean it will continue to work.
Great leadership includes a responsibility to question assumptions and ingrained perceptions that may be antiquated. When leading an innovative development-stage biopharma company, it’s easy to assume that innovation is second nature, but the reality is that it is easy to fall into the trap of complacency as GE did.
What Sectors Are You Paying Attention To And Why?
Koppel, Bain Capital:
Success and growth in our industry comes from innovating new and better solutions to the unmet medical needs plaguing our society. The Bain Capital Life Science team works to identify companies in need of capital that are focused on innovating and bringing such innovation to patients with unmet medical needs in important areas. Toward this end, a particular focus for us has been new modalities and delivery mechanisms to get therapies to the right place, in the right form, at the right levels, and on the right time courses. While we are largely disease area agnostic, we are focusing on serious diseases where new technology and approaches are allowing solutions that have not been possible before. Such new modalities and technologies include gene delivery, gene editing, cell therapy, RNA interference, and small molecule modification of transcription and translation.
Outside of biopharma we have been particularly focused on two subsectors: 1) the healthcare payer/provider space and 2) the technology space, where new players have been looking to enter the healthcare market. Innovation coming out of the life sciences sector will not be valuable if we cannot deliver it to patients in need and if life sciences companies cannot get reimbursed for it. That would be akin to the proverbial “can a falling tree be heard in a forest if no one is there” question. The broader healthcare ecosystem needs to ensure that patients have access to the best care and that the care is fairly reimbursed such that there is appropriate incentive to continue to find and fund the next generation of solutions.
With the recent high-volume chatter of personalized medicine and “Big Data,” we have been observing several technology companies developing new healthcare solutions using technology and data. Such approaches are often orthogonal to the ones used by traditional life science innovation companies. The interplay between these two approaches will be interesting to follow over the next several years.