Published February 17, 2021 | 4 min read
Key Points
- The biotech sector in 2020 saw record-breaking IPOs, significant M&A and another year of XBI outperformance vs the S&P500.
- COVID-19 has changed the landscape for biotech, creating growing investor interest and propelling digital health and telemedicine adoption.
- In gene therapy, 2020 saw some mixed results, but our KOL thinks new vectors with improved tropism for the targeted tissues/improved transducation efficiency will drive the field forward.
- Gene/cell therapy manufacturing remains a key topic of debate, but the increasing number of companies choosing to rely on in-house manufacturing rather than CDMOs is viewed as a favorable tailwind for the field.
- The interaction of the nervous system with other body systems, including the “gut-brain axis”, is gaining in importance in neurological research.
In December, the RBC Capital Markets healthcare team virtually hosted a highly selected group of private companies and key opinion leaders to get their take on the coming year in biotech and healthcare. The COVID-19 pandemic has highlighted the resilience of the sector given a vaccine developed in record-breaking time (11 months) and all-time high capital deployment across VC, IPOs, SPACs and follow-ons. At the same time, stay-at-home orders to combat the virus have spurred significant growth in digital health and telemedicine. Beyond the pandemic, research continues in areas such as gene/cell therapy and neurological disorders where major breakthroughs and long-awaited trial results are anticipated in 2021 and beyond.
Virtual medicine
The emerging digital health space is going to increasingly impact the entire pharma industry, from AI and machine-learning-driven drug discovery to digital therapeutics such as wearables and virtual delivery of care. This sector saw significant funding in the last year and is going to remain a core area of interest to investors in the near future, particularly as the world continues to battle the COVID-19 pandemic with stay-at-home orders and social restrictions.
Private digital health companies raised close to $12 billion in 2020, alongside numerous deals with traditional biopharma companies that snapped up ownership stakes or signed upfront payment or other deals. The barriers that existed in this space have all but disappeared, as the pandemic pushed virtual health to a tipping point, stripping away regulatory impediments and gaining massive numbers of first-time users.
Without those barriers, investors are recognizing that telemedicine represents an intersection between tech and healthcare investments. Valuations in the sector have exploded with the average across the group nearly doubling in 2020.
Without those barriers, investors are recognizing that telemedicine represents an intersection between tech and healthcare investments. Valuations in the sector have exploded with the average across the group nearly doubling in 2020. This is driven by interest from traditional tech investors, who see the huge addressable market, steep revenue growth trajectories and scalable business models they are familiar with in the tech world.
On the end-user side, consumers are becoming aware that they have more choices for getting care now. Economic pressures and new technologies will help push those consumer-driven forces over the tipping point brought on by the pandemic.
Gene therapy
There’s an old joke that there are only three problems with gene therapy - delivery, delivery and delivery. Conventional capsids such as AAV8 are good enough to achieve clinical efficacy and FDA approval for certain tissue like eye or CNS. However, using the same capsids for other tissues like liver, muscle or heart can be challenging given limited tropism for such tissues and high-doses needed. New vectors with improved tropsims and better transduction efficiency are needed to widen the therapeutic window and he sees many companies/academic institutions making progress in such direction.
Manufacturing is also a key topic of debate in the sector, with an increasing number of companies choosing in-house manufacturing rather than relying on CDMOs (contract manufacturing organizations).
Manufacturing is also a key topic of debate in the sector, with an increasing number of companies choosing in-house manufacturing rather than relying on CDMOs (contract manufacturing organizations). Our KOL views such trend as a favorable tailwind for the field given CDMOs can struggle to keep up with demand and the complexity of gene/cell therapy manufacturing requires internal expertise to facilitate scalability and de-risk regulatory interactions with the FDA. Bringing manufacturing in-house helps avoid some of these risks, although CDMOs will still have a place with smaller companies and even larger firms with established commercial processes.
Neurology
Neurology is a highly active field right now, with many hypotheses and breakthroughs, steps forward and setbacks. But there are seminal discoveries in the last decade that are driving research in diseases like Huntington’s and Parkinson’s. There are two seminal discoveries: improved understanding of protein misfolding links to neurodegeneration, and recognition of the role that supportive cells like astrocytes may play.
It’s fascinating to note, for example, that there is overwhelming evidence that Huntingon’s is caused by a single misfolded protein, mHTT, but this knowledge has not yet led to a breakthrough in treatment. Even though the cause has been identified, scientists have yet to discover why it causes Huntington’s, what leads to neurodegeneration and other basic questions to aid treatment development. Current trials on treating the abnormal protein may also affect the expression of the normal protein, the implications of which are unclear.
The field is also coming to recognize that the brain cannot be treated in isolation. There is an increasing focus on the interaction of the nervous system with other systems in the body, perhaps most famously, “the gut-brain axis” or the pathways linking the brain and the immune system.
The field is also coming to recognize that the brain cannot be treated in isolation. There is an increasing focus on the interaction of the nervous system with other systems in the body, perhaps most famously, “the gut-brain axis” or the pathways linking the brain and the immune system. In Parkinson’s disease, there is evidence that the misfolded alpha-synuclein is first present in the gut in the earliest phases and then moves up the neural axis and affects the brain.
This recognition is both a breakthrough and a complication. There may be ways to diagnose or treat these abnormal proteins before they reach the brain. But it also means that abnormal proteins in the brain may have to be targeted to avoid destroying normal expression of the protein in other systems of the body, as in the example of Huntington’s.
What’s certain in neurology is that it’s a rapidly expanding and highly innovative field of keen interest to investors. Further breakthroughs are likely to generate substantial new opportunities within the biotech space in the coming years.
The biotech sector in 2020 saw record-breaking IPOs, significant M&A and exciting valuations. Areas such as digital health, neurology and gene and cell therapy will be ones to watch this year, along with rare diseases, autoimmune disorders and the consistent focus on oncology.
