Life science industry is bucking trend of economic uncertainty — and bullish investors aren’t necessarily focused on COVID

By Brett Johnson
New Jersey | Jul 27, 2020 at 11:55 am
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Peter Meath is bullish on the life science industry in a time of economic uncertainty. He’s not alone.

Several recent initial public offerings in the life science space — including Somerset-based Legend Biotech, which banked $487.3 million from an IPO that closed in early June — have been the sort of financing success stories that other industries are hurting for. Nationally, private capital research firm Pitchbook reported that, in the second quarter of this year, venture dollars for U.S. biopharma companies topped $6.4 billion.

But, what’s less agreed upon is how much the biopharma sector’s battle with the COVID-19 pandemic is what has it doing so well — and whether new entrants in the industry are going to benefit from the influx of capital.

According to Meath, co-head of JPMorgan Chase‘s Healthcare, Middle Market Banking & Specialized Industries group, while the pandemic might have inspired fresh interest in life science markets in the Garden State and elsewhere, the headline-grabbing worldwide race for a COVID-19 vaccine is a surprisingly microscopic part of that interest.

The reason vaccines don’t typically attract same investor attention as novel drugs targeting cancer or rare diseases, Meath explained, is that there are certain pricing advantages and other incentives enjoyed by those medicines that makes venture capital firms willing to bet on them.

“Vaccines, however, are costly, complex to manufacture and can be complicated to run trials for,” he said. “Also, for example, if and when a (COVID-19) vaccine gets developed, there’s a lot of people saying it should be given away for free — and I tend to agree. But, when you’re playing the movie forward, it’s a question of whether there’s enough incentive economically.”

Billionaires such as Microsoft co-founder Bill Gates has publicly offered financing to those manufacturing the promising COVID-19 vaccines, and there have been a bevy of biopharma companies doing vaccine work that have experience recent lifts in the stock market.

But, in general, Meath argues the incentives aren’t strong enough to pull institutional investors to companies focused on infectious diseases.

“I do think there should be a reevaluation of how we change the incentive structure to account for not only COVID-19, but, God forbid, future pandemics,” Meath said.

Another piece of the biopharma community that might not be seeing the same love from investors? First-time entrepreneurs.

Meath said that, when it comes to liquidity, there’s also a question of how companies in this industry actually access capital now. Not only has the typical conference room pitch gone virtual, so have the conferences an entrepreneur might have used to network with investors. That’s not a problem for seasoned life science executives.

“But, I think first-time entrepreneurs or folks without a preestablished network of investors might be struggling in this new environment to attract capital,” Meath said. “So much of investing is relationship-oriented. As a result, I expect you’ll see venture dollars plateau somewhat for those entrepreneurs.”

Regardless, access to liquidity is still at a near all-time highs for this industry. And there are some portion of new industry leaders participating in the deployment of record amounts of capital.

No one could have anticipated the current upswing of private capital at the beginning of the year, Meath said. Because, even if the industry could cite an acceptable level of funding from venture capital firms, there were significant headwinds dampening prospects for the rest of the year.

“And that was in the form of discussions about (pharmaceutical) pricing reform,” he said. “How was it going to play out, given the election? Well, pricing reform still continues to be on the table, but the pandemic significantly changed the focus of everyone and everything.”

Meath, who prior to joining JPMorgan launched the health care- and life science-focused Square 1 Bank, one of the largest de novo bank startups in the country’s history, finds a lot to be excited about in terms of the industry’s financial prospects in the coming years.

And he’s particularly bullish about New Jersey’s life science market, he said.

“At no other time in my career have I ever seen as much innovation among life science companies,” he said.