Key Points
- There’s cautious optimism in the biopharma market, with a reacceleration in post-pandemic sales and approvals expected in 2H21.
- The SPAC surge is slowing down, and future SPAC ventures are going to need experience and a targeted approach in healthcare to have success.
- Despite some delays and surprises from the FDA, the industry doesn’t see a material change in its vision and assessment of benefit/risk.
- Healthcare as a whole needs to continue to transition to value-based care, and incentives within health insurance will need to be realigned to power this change.
The unique dynamics of the COVID-19 crisis have positively altered public, and investor, opinion of healthcare firms. This reputational boost has been partially responsible for the biopharma boom and SPAC surge on the markets. Coming into the start of this year, there was some concern that the market was overheating after a 50% rally between early November and mid-February on the XBI index. But nevertheless, the mood at the RBC Capital Markets’ Global Healthcare Conference was one of cautious optimism.
Expecting back-half sales and M&A acceleration
Many of the commercial-stage companies at the conference reported improving physician-patient engagement and medication uptake in the second quarter of the year. But for many, a significant reacceleration of sales isn’t expected until the second half of 2021 as the economy slowly comes out of the COVID crisis.
Companies were also showing a muted appetite for M&A at the conference, which could continue to lead larger-cap biotechs towards more bolt-ons or partnerships than major deals. But it’s also possible that this attitude will adjust in the latter half of the year, when sales accelerate once more.
Leader of the SPAC
Alongside the biopharma boom over 2020/21, the healthcare industry has seen a surge in SPACs as a route to going public. SPACs have a number of advantages, particularly for companies that have a strong pipeline, but less data to base value on right now. But it’s important for healthcare firms that the SPAC is backed by the right sponsor.
“It’s critically important that SPACs are backed by reputable sponsors and can position companies in the public markets for success,” said Jason Levitz, Head of Healthcare Equity Capital Markets at RBC Capital Markets, in a panel discussion.
“For sponsors that are credible, with experience and a targeted approach within healthcare, those that have had success in the past are going to be those that private companies out there are going to want to partner with.”
Why investors are backing SPACs
On the investor side, SPACs represent a unique opportunity to get inside a company and work on its structure and robustness, according to John Rodin, Co-President at Glenview Capital and CEO at Longview Acquisition Corporation.
“One of the things that drew us to the SPAC was that you have this opportunity to get it right the first time. When you find this company, you can make it such that when the company starts its public journey, it has best-in-class corporate governance, it already has the balance sheet that you think it should have. That was a super unique aspect to us,” he said.
There has been a slowdown in issuance, but Rodin believes that’s about recycling capital once deals get announced and closed. It may also be a sign of a maturing market for SPACs.
“I think it’s going to be incrementally harder, in the next few years, for those who don’t really have any experience across the financial sector to raise a SPAC. I think seasoned issuers are going to become more seasoned and newer ones are going to have a little bit of trouble getting traction,” he said.
Aduhelm approval marks an inflection point
An originally stringent FDA regulatory environment was a key area of focus at our conference, but we wonder if approval of Biogen’s Aduhelm Alzheimer’s treatment marks an inflection point? Highly controversial, this approval potentially sets a new regulatory tone for years to come, particularly with a new administration (though notably still without a confirmed FDA Commissioner). We see this as potentially encouraging for biotech players even outside of neurology where regulatory scrutiny is in focus, though it will take time to fully elucidate all the potential read-throughs.
The shift to value-based care
The FDA, like many others in the industry, is working to keep up with a rapidly accelerating healthcare evolution. As well as novel breakthroughs in treatments, digital health is in focus, driving healthcare to be more consumer-centric and giving patients more choice in their provider and their care. These changes will require transparency in payments and reimbursements and sweeping changes in the way that both insurance and healthcare provision is incentivized.
There needs to be new patterns in how risk is pooled and shared among insurers, and smarter economic and actuarial fixes in dealing with risk so that the system can become fairer and more accessible. One example is the development of one-off cures, increasingly possible as R&D in cell and gene therapy advances in leaps and bounds. But how does a system that’s set up for chronic, long-term care price a cure? It’s a question that needs to be answered to support this kind of life-changing research.
The healthcare industry is rapidly transforming on almost every front, transitioning to digital solutions and patient-led care, accelerating drug development off the back of well-financed scientific breakthroughs and changing how it approaches the markets.