Market outlook: biotech is more than a Covid-19 story
With the world’s focus very much on the coronavirus pandemic, biotechnology has arguably been more in the public eye than ever before. Treatments (such as Gilead’s remdesivir) and vaccines (Moderna, BioNTech/Pfizer, Novavax, Janssen et al) for Covid-19 have largely been founded on biotech innovation, even where they have been developed using the capabilities of major pharmaceutical companies. The focus on vaccine development continues, given the emergence of virus mutations, which may necessitate more frequent booster shots than had initially been expected.
However, biotech is more than just a pandemic story. The investment case for biotechnology and healthcare is underpinned by scientific advances and demographic factors. With life expectancy rising worldwide, as well as growing prosperity in developing markets, there is a greater demand globally for treatments for previously intractable health issues such as dementia (where a breakthrough treatment is yet to be developed). Meanwhile, conditions such as heart disease and cancer are increasingly treatable, with positive long-term prospects. An example at the cutting edge of biotechnology is the promising trial results for gene-editing treatments focused on chronic haematological disorders such as beta thalassaemia and sickle cell disease, with data showing efficacy that could ultimately indicate a cure for these life-limiting conditions.
The year 2020 has gone down in history as a northmost buoyant year for initial public offerings (IPO) for biotech raising more than $14B. M&A activity was more subdued as the COVID-19 pandemic peaked in the first half of the year, but then recovered in the latter half of 2020. Positive post-IPO performance fuels the market activity while also boosting bigger market caps. Meanwhile large pharma companies are battling to persuade highly prospective companies for an M&A instead of going public with expensive acquisitions or more early stage moves. This trend nourishes deal values and valuation multiples. Which in turn leads to higher lucrative returns for venture capitalists and ample stimulus to (re-)invest capital in follow-up funds. Overall, we deem that the outlook for the 2021-2022 period looks strong. With sufficient fresh capital, strong R&D momentum around new medical inventions and an open IPO/M&A window- biotech investments and exits are expected to continue at a healthy pace. In the long term, the key question that remains is whether the large allocation of cash to the sector will proportionally translates into improved patient outcomes and shareholder returns.