At this moment in Q4 2020, it appears that we are at an inflection point, with many variables in play over the months to come. Simply put, short-term uncertainty is expected to last until Spring until two to three approved vaccines are successfully distributed and administered to help the population attain threshold herd immunity at 60%.
Although there are critical areas that life sciences executives must observe at this inflection point, I believe these considerations are tempered by encouraging news as well.
Continued COVID-19 headwinds
During the initial surge of the pandemic, we witnessed the significant downstream impact health care systems acutely focused on to address the needs of COVID-19 patients. Consider this study from nine high-volume US cardiac catheterization laboratories, which found a 38% decrease in patients treated for ST-elevation myocardial infarction, a life-threatening condition. Beyond these human tolls, the ripple effects of further delayed medical procedures and screenings will continue to be felt by health care providers and pharmaceutical companies alike.
The need for consistency and unity between pharmaceutical companies, regulators and policymakers has never been greater. With 48 vaccines for COVID-19 currently at some stage of clinical trials, it’s been an all-out innovation sprint to develop a safe and protective vaccine. But with surveys showing vaccine hesitancy with only 58% of the population willing for inoculation, industry leaders must collaborate with government to prioritize public health for the long term.
The pandemic has illuminated the need for resiliency by re-onshoring manufacturing of essential medicines so there are no interruptions to supply chain. Now is the time to reimagine the future of the pharmaceutical supply chain, not only for producing the therapeutics needed to treat COVID-19 and replenishing the Strategic National Stockpile but also for long-term planning to build a resilient supply chain network to pre-empt future disruptions caused by natural disasters, geopolitical risk or pandemics alike.
Tailwinds on the horizon
Across the life sciences sector, there’s reason for executives to be optimistic in the year ahead. Liquidity and balance sheets are strong, with $1.45t in dry powder for pharma alone. Although M&A and other deal making slowed earlier this year, there’s reason to believe that activity will continue apace, fueling further business growth through targeted bolt-on acquisitions and financing innovative technologies and platforms at biotechs.
COVID-19 in particular has demonstrated the incredible capacity and speed of innovation of the biopharma industry. Consider this: although the first Ebola outbreak was reported in 1976, a vaccine was only approved by the U.S. FDA in 2019. There are no approved vaccines for two other coronaviruses, SARS and MERS, which were first reported in 2003 and 2012, respectively. With 48 new molecular entities accepted and approved by the FDA as of early December, the year-over-year analysis of innovations suggests a strong pipeline in place to replenish the sector’s aging portfolio.
More broadly across the life sciences spectrum, it is a strong time for IPOs, including follow-ons and the comeback of special purpose acquisition companies (SPACs). As of July, there were 100 SPACs seeking acquisitions, with over $30b in equity held in trust. With a strong flow of capital, low interest rates and strong performance by biotech stocks, it’s likely that we’ll see continued activity in this space, especially across the health care and life sciences sectors.
Turning to political influences on industry, there’s good reason for executives to feel positive following what was a contentious election cycle. Analysis shows that over the last thirty years, the S&P 500 Health Care Index, which includes pharma companies, medical device makers, biotechs and payors, has shown an 18% annual return during a Democratic presidency, compared with a 4% return during Republican administrations.
In fact, during a Democratic presidency with a split Congress, as may be the result of the runoff Senate elections in Georgia, the average returns were 22%. Although past is not prologue, these insights should give life science executives a high degree of confidence to move ahead with capital deployment on digital capabilities, supply chain resiliency and M&A – especially divesting non-core assets at historically favorable valuations.
While there appears to be a clearer path toward a new normalcy, I encourage life sciences companies to stay resilient and agile by keeping these headwinds and tailwinds top of mind. Perhaps the only thing that is certain is uncertainty — a fitting thought as we close out this unpredictable year.
