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Why biopharma investment requires a different mindset

In the latest episode of Pathfinders, Noël Brown, Head of US Biotechnology Investment Banking at RBC Capital Markets, reveals why he’s feeling optimistic about M&A in biopharma and how leading in biotech investment and corporates needs visionary long-term thinking.

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By Noel Brown
Published November 23, 2022 | 23 min read
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Key Points

  • The combination of $200bn of revenue at stake in expiring patents and $500bn in firepower should create a perfect storm of acquisitions.
  • Biopharma leaders have to be visionary and inspirational to keep a company going through the many years of drug development.
  • And because biopharma investors and leaders are accustomed to long-term thinking, they’re less likely to be swayed by wider market volatility.
  • Neurology is one of the most exciting avenues of innovation in biopharma today.

While investors at large may be mainly focused on the volatile economic picture, within biopharma industry, the outlook is somewhat different. The pharma sector has a fast-approaching patent cliff that will put about $200 billion worth of revenue in question, making M&A look very attractive as a remedy. Innovation is still running high in the sector, with neurology tracking to be one of the most exciting fields in the coming years. And biopharma leaders have the benefit of long-term thinking – they’re less likely to be swayed by short-term swings in the market.

As an expert with more than 20 years of experience advising biotech companies, Noël Brown, Head of US Biotechnology Investment Banking at RBC Capital Markets, believes that volatility goes up and it comes down, but what’s lost in the downturn is often recovered and even built on.

“With the exception of this most recent downturn, the very low point, every pullback has been higher than the prior point of pullback. So if you think about a chart, every time the market comes back, it comes back higher.

“The recent downturn tested that analysis and pushed a bit lower and longer than we’re used to seeing. But it’s still showing signs of coming back with the same quickness of every other downturn,” he says.

 

The perfect storm of M&A

While biotech corporates are watching the market volatility, they’re also very focused on the future market for M&A. There have been big deals between pharma and biopharma companies recently that are increasing optimism in the sector and Brown is optimistic too, because pharmas are facing into patent expirations on a magnitude that they’ve never seen before.

“Between now and 2030, there’s about $200 billion of revenue at risk from drug patents expiring. But this is happening just as pharmas are sitting on incredible amounts of capital, probably $500 billion of firepower. Put that together and you get this perfect storm of larger potential acquirers who have real needs.”

Noël Brown, Head of US Biotechnology Investment Banking at RBC Capital Markets”

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“Between now and 2030, there’s about $200 billion of revenue at risk from drug patents expiring. But this is happening just as pharmas are sitting on incredible amounts of capital, probably $500 billion of firepower. Put that together and you get this perfect storm of larger potential acquirers who have real needs.

“In order to propel their businesses, larger pharmas will have to bring in drugs and technology or figure out a different way to survive long term, because losing that sort of revenue obviously leads to shrinkage of your platform,” he adds.

Brown foresees many exciting deals where pharma acquires new technologies, and drugs in development that complement what they already do or expand them into new areas. However, he cautions against biopharmas holding out for acquisition. Strategically, biopharmas should plan to achieve success on a standalone basis, wherever possible.

“If you’re focusing on indications that are manageable, then you should plan to take it as far as you can, because sometimes it requires you launching a drug, demonstrating its value to patients and that it’s on a path to being accepted as a main drug for treating a particular disease, before you’re acquired,” he says.

 

The vision of leaders

That long-term thinking is integral to biopharma strategy and it’s also what somewhat insulates corporates in the field from being reactionary to wider macroeconomic trends. Two thirds of CEOs surveyed by the Conference Board felt that the Fed’s war on inflation would eventually trigger a recession and 61% were already reporting worsening economic conditions. But in a survey of biotech investors by RBC Capital Markets, 60% of investors were bullish on the sector.

“Partly, that highlights different personality traits,” says Brown. “I think you’ve got to be a person who’s excited and optimistic about what the future holds when you come into biotech, both as an executive and as an investor.

“I think you’ve got to be a person who’s excited and optimistic about what the future holds when you come into biotech, both as an executive and as an investor.”

Noël Brown, Head of US Biotechnology Investment Banking at RBC Capital Markets”

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“If you look at the math, you only have about a 6% chance of taking a drug from conception to ultimate approval – those odds are challenging. Think about managing these companies, not just driving the development of the drug, but managing the culture of the organization over the course of a changing landscape. There are big upticks in success but sometimes you have years between those events where you’re just trying to keep an organisation going and keep people excited.”

 

Neurology on the fast track

When it comes to what’s keeping Brown excited in the field today, it’s the success and progress in neurology. Not only is this a growing area of study where exciting new innovation is happening, but there’s also a shift in the stance of the FDA towards the importance of addressing central nervous system (CNS) ailments.

“The value of the approval of Aduhelm for Alzheimer’s from my perspective was the demonstration of the FDA’s stance on providing options to patients suffering from terrible neurological diseases,” says Brown.

“The accelerated approval pathway was put in place to promote the development of drugs for HIV. It was then adapted and deployed for the development of drugs in oncology, and that's why we saw this tremendous amount of productivity in the development and approval of drugs for various cancers. Applying that same pathway to neurology is a recognition of the fact that this is critical, and it goes everywhere from neurodegenerative disease like Alzheimer's to neuropsychology.”

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