Biotech is poised to benefit. The industry is coming off a record year for biotech IPOs in terms of numbers of deals, as well as their proceeds.
This year, the U.S. economy is expected to have its strongest growth since 1984, according to a new report from Oxford Economics. It estimates 3.3% growth in real gross domestic product (GDP) and 7.1% year-to-year growth in the economy by the end of 2021.
Earlier, J.P. Morgan’s chief economist Michael Feroli predicted 6.4% growth year-to-year.
Biotech is poised to benefit.
The industry is coming off a record year for biotech IPOs in terms of numbers of deals, as well as their proceeds.
Last year saw 78 biotech IPOs – the most ever in a given year, and a 77% increase from 2019, according to BDO’s Winter 2021 Biotech Brief. IPO gross proceeds jumped from $5 billion in 2019 to $12 billion in 2020.
“After a record-breaking 2020 for venture fundraising, there’s huge overhang in available capital for 2021 deployment,” Todd Berry, national co-leader for the national life science practice and assurance partner for BDO, told BioSpace. “With these funds flowing into 2021 along with continued public money that will be invested in new vaccines (and other therapeutics and diagnostics), I think there will be continued robust investment this year.”
The venture capital (VC) funding may not eclipse that of last year, but it will be significant.
“It’s clear the market is betting on biotech,” the BDO brief noted. Investors are investing earlier and in higher volumes, making it easier for companies to reach the $200 million market capitalization needed to be listed on the NASDAQ Biotech Index. Consequently, 100 companies were added to the NBI in 2020, up from 40 in 2019, and biotech stock prices increased 26% in 2020, according to the BDO brief.
Government funding was widespread last year, too, largely because of the pandemic. BDO said that 82% of life science companies received some form of government assistance during the pandemic.
| BDO reported that 64% of biotech CFOs plan to increase R&D spending and 50% plan to collaborate on commercialization this year. The leading areas of interest are diagnostics (41%), COVID-19 vaccines (32%), and COVID-19 therapeutics (32%). COVID-19 interest is expected to decline as the pandemic wanes, but until that happens, companies in non-COVID-19 areas may be challenged to find financing. |
| Additionally, BDO reported, 73% of companies have three or four promising products that could benefit from the cash infusion IPOs bring, suggesting continued robust activity. |
Interest in special purpose acquisition companies (SPACs) also is growing. “Biotech SPACs could eclipse the IPO market—in 2020, we saw proceeds from biotech SPACs roughly equivalent to proceeds from the entire biotech IPO market of 2019,” Berry speculated, noting a class of “very robust, very sophisticated investors” expressing interest.
SPACs became a force in biotech in 2020, after making inroads in other industries. The benefit is that they provide access to capital faster than IPOs. For investors, however, SPACs require enormous trust in the SPAC management team.
Investment trends this year will be driven by the historic strength of biotech; the need for COVID-19 vaccines, therapeutics, and diagnostics; unmet needs for an aging, global population; scientific innovation; and lower interest rates.
The strength of the key U.S. biopharma hubs is amplified by public support in terms of tax credits and startup funding that is expanding the industry beyond its historic centers, Berry pointed out.
The COVID-19 pandemic shone a light on the industry at a time when it responded with unprecedented speed to develop and deliver vaccines to a global population. That, coupled with the understanding that there are a great many diseases with unmet needs, “will spur a flurry of continued investment,” he said.
The $1.9 trillion economic stimulus package (ready for debate in the U.S. Senate), “will be helpful but not transformational, given such incredible investment by private institutions.”
There are headwinds, however. Tax policy is a top concern for 18%. President Joe Biden called for increases in the corporate tax rate during his Presidential campaign, and Senator Elizabeth Warren introduced a bill March 1 calling for a wealth tax on America’s richest households and trusts.
“Tax increases don’t provide any upside for biotech,” Berry said, but “it remains to be seen if any of those things are enacted in the short term. They’re worth keeping an eye on.”
He said he suspects their passage may depend upon the robustness of the economic turnaround.
“Is this the right time to raise taxes? Probably not, but it may happen,” he cautioned. Currently, however, “The focus for the current administration right now is on recovering from the pandemic and growing the economy.”
