2020 is a year that will go down in history. The Covid-19 pandemic has wrought havoc across the world, disrupting the lives of individuals and the conduct of businesses. Although the pharma industry is no exception – with clinical trials in particular being impacted – the sector has also experienced growth and attracted significant investment in 2020.
Covid-19 put into perspective how important the pharma sector is to the global economy; without vaccines, the world would be a lot further from getting back to normal.
Despite the pandemic, pharma companies were able to bring drugs to market, close seed and Series rounds, sign partnerships and agree mergers and acquisitions (M&As) with the help of online platforms. One subsector of the industry that particularly thrived financially was biotech.
Goodwin lawyer and life sciences partner Andrew Harrow reflects on 2020’s impact on the pharma sector, particularly biotech, and discusses what 2021 might look like for industry deals and investment.
Allie Nawrat: Was 2020 a positive or a negative year for the pharma industry?
Andrew Harrow: It really was a remarkable year with everything that’s gone on. Life sciences became primetime. The speed and agility the industry has shown to turn to solving this global problem was incredible. In the face of crisis, everyone pulled together. I hope it is something that will carry on.
Focusing on biotech, there was a lot of deal activity and some pretty large M&A transactions. We worked on several large private biotech sell-side deals such as the sales of KaNDy Therapeutics and Inflazome.
We’ve seen more traditional partnerships and licensing deals. Option deals are becoming quite common, but we’ve [also] seen quite a lot of dual or triple-track processes. People have come to terms with the fact they can run a full IPO process in parallel with an M&A process and see which deal looks better at what time. Others are considering a licensing deal at the same time. People are becoming savvier to almost play pharma against themselves and see where that takes them.
Having cash in the bank enabled companies to be much more robust in their processes. If they are funded through the next phase of development and so are not desperate to do a deal, they can be choosier about who they partner with and on what terms [they sign deals].
The US capital markets remain very buoyant, there is a lot of cash and clients getting great IPOs away and a really good performance going back to the market for follow-ons. There is a lot of cash floating around and that’s held true. The SPAC [special purpose acquisition company] phenomenon in the US has been notable. There are billions of dollars of capital waiting in SPACs looking for partners.
AN: What is your outlook for the pharma industry in 2021?
AH: It remains to be seen. A lot of the deals done in 2020 were probably legacy relationships or were founded on relationships built through conferences, like J.P. Morgan in 2020. So, it will be interesting to see how deal flow holds up through 2021 where there hasn’t been as much face-to-face interaction or the soft contacts, which are impossible to reproduce virtually. Impromptu meetings [around conferences] were the norm, so will there be a dip six to nine months from now?
Having said that, there are definitely efficiencies that have been brought to bear through the use of technology. For example, technology has made deals much more efficient. You can have much bigger deal teams now; you can have real-time Zoom meetings with specialists in different areas. People no longer need to go and talk to others [post-meeting], those experts can be brought into the call straightaway. But overall, I think people will want to revert to old school physical meetings and relationship-building.
The sense is that deal flow will hold up well, but it will be interesting to see if fully virtual deals still get done. We are still a few months away from being able to jump on a plane and into the meeting room.
AN: What will be the areas of strength for the industry this year, and why?
AH: Oncology remains a focus. We will see it going from strength to strength and there will be lots of money pouring into that. Also, there will be movement in inflammatory diseases and CNS – the usual suspects.
We are seeing moves around innovative treatments. Goodwin helped [psilocybin-focused] COMPASS with its IPO year. I think other companies will see them as a pioneer. Cannabis and cannabinoid treatments are now widely accepted and psychedelics companies are going the same way given that there is more market acceptance.
mRNA has been around for a while, but it is really at the forefront now and the wider public have quickly gotten used to the idea of it. The speed of that being applied to Covid-19 paves the way for further applications.
[Antimicrobial resistance (AMR)] is the elephant in the room; there is a looming crisis and people have realised that something has to be done about it. From a real-world perspective, the Covid-19 crisis really brought to bear how vulnerable the human race could be.
The issue is always how do you make it pay off? People are thinking about pricing and the subscription model; is there a way to sort out the economics of making it worthwhile for pharma to invest? The AMR Action Fund is a great start.
AN: What impact may Brexit have on the UK and European pharma sector?
AH: The transition period has ended, but we are still in a transitional period where the MHRA [UK Medicines and Healthcare products Regulatory Agency] can rely upon European approvals, but obviously can fast-track UK approvals [too]. The relationship between the EMA [European Medicines Agency] and MHRA will also be an interesting dynamic going forward as you hope they will work collaboratively, rather than competitively.
It will be interesting to see how the CMA [Competitions and Markets Authority] will step up. It took a very active role in the Spark-Roche transaction and caused significant delays to that transaction. We are seeing buyers routinely bringing a notification to the CMA that deals are happening, just to obviate any risk of the deal being looked at after the event. Now it’s independent of the EU, there is a sense that the CMA may become more active in looking at transactions involving the UK.
There is also the new NSI [National Security and Investment] regime that is coming in. It seems to have biotech firmly in its sights. It is going to take a while to see what impact that will have. It will be interesting to see how that plays out in practice, in terms of how it affects deals being done, foreign investment in the US [and] accessing the US capital markets etc.
AN: What are your predictions for the pharma industry over the next five years?
AH: It is becoming clear that pharma is doing less and less in-house R&D and companies are [instead] building a pipeline through acquisitions. The M&A side will go from strength to strength and we will probably see more activity there.
There’s been a bubble in the US capital markets, which has meant a lot of companies have rushed on to Nasdaq. The indices in the US have been very good to biotech. There will be a reset at some stage; I’m not sure when that’ll be, but it presumably can’t go on forever.
Some of the Covid-19 legacy around deals will remain. I think there will be more reliance on technology to do deals. Technological growth is going to accelerate and will draw efficiencies into the process as well.
It’ll be interesting to see whether the SPAC trend finds its way into Europe and the UK. There are regulatory and legal reasons why it’s not as easy to carry out SPACs in the UK and continental Europe, but it’s not that they can’t be done, it is just a different model.
The performance of Nasdaq has left some European exchanges in its wake for a while. As the European markets mature and become more specialist in the biotech market, particularly with the growth with European VC funds and them becoming genuine cross-over investors, they may drag some activity back to Europe.