18 May 2020
When I discussed writing a monthly finance column for Pharmaceutical Executive with Editorial Director Lisa Henderson a few months ago, I never imagined that my first installment would focus on a once-in-a-100-year storm. COVID-19 dominates all things around the globe, including normally recession-resilient biotech. Leaders in the space have been forced to examine their portfolios under a critical eye, assessing cash burn, access to clinical trial networks, and viability post-COVID-19.
In five short (or long) weeks, the pandemic crashed the economy, US unemployment exceeded 22 million, and retail sales have shown the greatest declines on record. Overnight, we will be living through the largest drop in GDP in history and the biggest increase in unemployment ever. The effects of these steep and rapid shocks will echo well into the future and beyond the near-term period of social distancing that triggered them.
Markets have plunged, interest rates are nearly zero, and Amazon, Netflix, and Zoom are among the “go-to” stocks as the obvious beneficiaries of quarantine.
The world is counting on biopharma to come up with the therapies and vaccines key to ending this pandemic, saving lives, and reopening economies. First responders are today’s heroes, risking their lives on the front lines of a system ill-prepared to protect them and to manage the overflow of COVID-19 patients.
No surprise, biopharma stocks have outperformed the markets due to the prospects for therapies and vaccines, as well as their defensive nature, which make the industry a classic outperformer in an economic downturn. As I write this, the premarkets are soaring on early reports from STAT News of encouraging preliminary results for Gilead’s remdesivir against COVID-19. The Nasdaq Biotech ETF is currently trading above its late 2019 and early 2020 highs. In theory, the group has more room to run.
Last month, the NIH announced it was launching a sweeping public-private partnership between federal researchers and 16 big pharma companies called Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV). The collaboration aims to standardize and prioritize research into drugs and vaccines that have high near-term potential.
COVID-19, however, will also drive sustained challenges for the biotech industry and, for some companies, threaten their existence. Most development-stage biotechs lack revenues or earnings to fund their businesses, but instead are serial capital raisers highly dependent on capital markets to bankroll their pipelines. Clinical data is often the currency required to tap the markets and raise necessary funds, but new clinical trials and almost everything non-urgent, non-COVID-related is currently shut down or on hold.
Biotechs must evaluate how to extend their cash runways and act with urgency to reprioritize programs, ring-fence critical efforts, and deemphasize, drop, or delay others. Venture debt should be considered where equity financing would be highly dilutive, if even available. “We view the current dislocation as an opportunity to invest in and support some of the best management teams and companies,” said Parag Shah, CEO and founding managing director of K2 HealthVentures. Partnering may create options for biotechs as well. Large biopharmas with lots of cash will likely seek to take advantage of the current dislocation to enhance their portfolios.
During and post-pandemic, it is absolutely critical that companies control what they can with intent and precision. That means, along with strategies to extend cash runways, asking the following:
• Is your portfolio still relevant and viable in this new world?
• Does your portfolio have access to a clinical trial network? Many of these will be constrained for a protracted period of time. Those targeting high unmet need, such as drugs/vaccines, will be the first brought back online. Are you one of them?
The bottom line is that programs with questionable value before COVID-19 should likely be repurposed, if possible, or dropped now. An explicit strategic plan is required, one which spans the spectrum and implications of a modest or moderate delay, or an extended delay, with scenario planning around each.
In the words of Maya Angelou, “Hope for the best, prepare for the worst, and be unsurprised by anything in between.”Print
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