Pharmaceuticals

The impact of COVID-19: a catalyst for change, innovation and investment

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Key Points

  • COVID-19 has been a catalyst for change, innovation and investment across the biopharmaceutical industry.
  • The pandemic has propelled telehealth into the mainstream, opening up multiple opportunities (and challenges) for providers.
  • Firms will re-evaluate the geographical diversification of their supply chains and clinical trial processes post COVID-19.
  • Expect a boon for diagnostics manufacturers if wearable devices become the norm to identify the potential pandemics of the future.
  • Drug pricing could emerge again as an issue for the sector, particularly when cures are found for COVID-19.
  • We see continued investor interest in funding highly innovative and disruptive development-stage biopharma companies.
  • Biopharma firms will need to keep pace with a changing world, investing in new mission-critical areas that are increasingly data-driven.
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In just a few months, COVID-19 has spread across the world, restructuring societies, reshaping economies and redefining the industries that will matter most in the ‘next normal’.

Perhaps unsurprisingly, the pandemic has had a positive reputational impact on the biopharmaceutical sector. Over the last five years, larger biopharmaceutical firms have suffered from negative public perception due to issues such as drug pricing and prescription opioid abuse. Citizens and investors alike are now looking to these companies for the solution to this public health crisis.

A Starting Gun for Accelerated Change

Many aspects of the way biopharma firms operate are changing profoundly, perhaps permanently, and the companies emerging from the crisis are likely to be materially and operationally different from those that went into it.

In this sector, the next phase of COVID-19 won’t be a slowdown but an acceleration of change and innovation, many of which were simmering in the background before the pandemic. Right now, our clients are combating accelerated challenges with accelerated solutions.

Undoubtedly, COVID-19 has dramatically increased the use of cutting-edge technologies. Until recently, telehealth was relatively uncharted territory for most physicians, patients and insurers. Now, the pandemic is propelling telehealth into the mainstream, opening up multiple opportunities and challenges for providers and payers at key touchpoints on the healthcare continuum. There’s no question that patients will demand this type of relationship with their physicians going forward.

"In this sector, the next phase of COVID-19 won’t be a slowdown but an acceleration of change and innovation, many of which were simmering in the background before the pandemic.”

- Andrew Callaway

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With social distancing and quarantine measures in place, pharmaceutical sales reps have been sidelined and it’s likely that changes to the traditional sales model (that have been brewing for a long time) will be accelerated post COVID-19. After all, if physicians are seeing patients on digital platforms, it’s unlikely they will welcome pharma reps in person. Consequently, companies are asking what digital platforms can they use to bridge those gaps and what will those digital solutions mean for their sales forces? These questions are top-of-mind among biopharma CEOs and Boards at the moment.

Another key concern that was also brewing in the background pre COVID-19 is the overreliance on any particular geography for too great a proportion of pharmaceutical raw materials, APIs, and even finished product. Western manufacturers have perhaps become overly reliant on China and India in the industrial supply chain. Indeed, China manufactures the vast majority of the world’s antibiotic supply. Will companies now reconsider what they bring back to the US? Will more manufacturing return to the United States?

Biopharma has spent the last two decades focused on globalization. Firms will be increasingly mindful of geographic diversification of clinical trial sites to reduce the potential impact of future crises on clinical trial progress. We can expect biopharma firms to re-evaluate not only their supply chains but also clinical trial processes and to invest more in redundancy planning.

If patients are seeing their doctors virtually rather than in-person, the diagnoses of diseases and conditions will be much more challenging. We can therefore expect to see significant steps toward the adoption of wearable and/or at-home, FDA-approved technologies to aid in making diagnoses.

COVID-19 could end up being a boon for diagnostics manufacturers if device-wearing becomes the norm to identify the potential pandemics of the future and track them. It’s also easy to see the potential for wearables to change how clinical trials are conducted in the current climate, as they would aid enrollments, allow for completely remote, real-time data collection in many cases, and even aid post-marketing surveillance.

“Firms will be increasingly mindful of geographic diversification of clinical trial sites to reduce the potential impact of future crises on clinical trial progress.”

- Greg Wiederrecht

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Similar to this

Lastly, drug pricing could emerge again as an issue for the sector, particularly when cures are found for COVID-19. Like any industry operating within a capitalist economic system, biopharma companies naturally seek to maximize profits from their innovative products. The key word is “innovative”. The crisis is providing a rare opportunity for the industry to reset its reputation and demonstrate to the public that “innovative,” research-based companies will come to the rescue to solve this crisis.

A large proportion of biopharma has turned its attention to finding a cure for COVID-19. Resources have been re-directed and large sums of money are being spent on research, development, and the licensing of intellectual property to prosecute the problem. What will this mean for availability and affordability of treatment on a worldwide scale? For the benefit of all, could there be compulsory licensing in poorer countries? Will not-for-profits step-up to pay for these essential medicines? Will patent pools and cross-licensing solve the problem? Could there even be price controls in the free-market US? Could the crisis result in a tipping point for how drugs in general are priced in the US?

Tailwinds for Industry Growth

Clearly, the biopharmaceutical industry is adjusting to a ‘new normal’ post COVID-19 that has provided tailwinds to the embracing of technology and different ways of doing things. There is little doubt that the outlook for the sector remains strong.

From a capital markets perspective, we see continued investor interest in funding highly innovative and disruptive development-stage biopharma companies. The markets remain open for opportunistic transactions, while other sectors focus largely on rescue financings.

Very well-capitalized, large-cap companies are going to look to be as acquisitive as they have been in prior years. These companies continue to seek growth and will look externally for innovative products and technologies. There's been a slowing of M&A activity over the last 3 months, but there are also signs of life. We expect that activity will be highly episodic until we get more clarity on a therapeutic solution for this virus.

Over the last decade, with elevated market valuations and active strategic buyers, private equity firms have been challenged to compete in biopharma. However, what we’re seeing post COVID-19, is private equity re-evaluating the landscape and trying to figure out if there are new investment opportunities. Some of the larger firms are also showing a willingness to consider creative deal structures and take more clinical and regulatory risk.

Strategies for the Future

Looking ahead, biopharma companies will need to keep adapting to and embracing new technologies to keep pace with a changing world that is increasingly data-driven. With capital continuing to flow into the sector, there is an opportunity for firms to invest in new mission-critical areas and broaden their scope of therapeutic innovation.

Genome sequencing guru Craig Venter said, “If the 20th century was the century of physics, the 21st century will be the century of biology.” Steve Jobs said, “The biggest innovations of the 21st century will be at the intersection of biology and technology.” It’s becoming clearer that the future of biopharma will be tied to the future of the tech sector.

Artificial intelligence, machine learning, wearable sensors, and the ability to mine and process yottabytes of data from genomic sequencing, patient records, epidemiologic studies, as well as diagnostic and imaging technologies, will result in exponential progress in the understanding and treatment of disease.

With vastly increased amounts of information and learnings, we will increasingly realize that what were once categorized as complex polygenic, multifactorial diseases and conditions like schizophrenia, autism, bipolar depression, essential hypertension, asthma, ischemic heart disease, mental retardation, congenital malformations, and even ageing are, in fact, distinct diseases or conditions too conveniently lumped under broad umbrellas.

Data and the ability to use and interpret the data (less than 0.5% of all data generated today is actually used) will result from the amalgamation of expertise from biology and technology sectors that will improve diagnoses, aid in the design and development of cures, and relieve the burden of disease and human suffering.

Embracing Agility

The pace of innovation is accelerating. Being aware of the changes afoot – and being able to pivot to address them – will help safeguard the sector as COVID-19 redefines how we live, and the way we develop new therapeutics and deliver healthcare, forever.

Here, at RBC Capital Markets, we will certainly do our part to support that success.

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