With the public health crisis causing widespread disruption to our lives, we were bracing for a downturn in investment last year that never came. Instead, the markets rallied around healthcare and life science companies and so did investors. In fact, venture capital investment in life sciences soared to a record high in the third quarter of last year. So what’s in store for 2021?  Peter Meath, Co-Head of Healthcare and Life Sciences for Middle Market Commercial Banking at J.P. Morgan, is bullish that the momentum will continue, particularly with investment trends focused on pain points amplified by the Covid-19 pandemic. 

“There has been no better time, at least in my career, to start a business in life sciences in terms of the pace of innovation, the attention to the space, and the amount of capital that’s focused on the space right now. It’s certainly pretty impressive to behold,” observed Meath.

There were a number of factors that converged in 2020, noted Meath.

Volume

“We saw venture funds were raising new funds on top of record volume, so not only did we see record funds deployed, we watched funds raise new dry powder to put to work in the future. All signs on the financing side were extremely positive.” 

Those funds landed in a number of areas. Diagnostics have seized the spotlight in the past year, propelled by the urgency for efficient tests to detect Covid-19. There was also a demand for track and trace technology platforms that could reduce the risk of Covid-19 being spread across communities. 

“The macro event of the global public health crisis put enormous pressure on the economy but the solutions to that event — diagnostics and vaccines — were born out of the life sciences sector. There was an immense amount of investor interest in the space, and you saw that born out in the numbers, both the record amount of venture funds raised as well as the record amount of venture capital deployed. Every subsector of the life sciences industry saw some impact from this,” said Meath.

He acknowledged that many of the companies responding to the need for Covid-19 diagnostics are at the growth stage and Mezzanine stage. Injecting capital into these companies was intended to help get them to market quicker and support rapid expansion. With so many companies pivoting to developing Covid-19 focused technology, Meath said their success will depend on how long the tail is — whether these solutions can be applied to other market needs. 

Intersection of technology and biopharma

A wider trend that’s been growing is the intersection of technology and biopharma, both to support many facets of drug development from research and development, clinical trial design, clinical trial recruitment and clinical trial management. There is also manufacturing and supply chain to consider. If the race to develop and distribute a vaccine for Covid-19 taught us anything, it’s that even when we have the miraculous breakthrough of companies that can collaborate to develop vaccines at unprecedented rates, the distribution needs, such as mapping a clear path for how these vaccines get from the manufacturer to centralized hubs to the states and cities at controlled temperatures, can pose significant challenges in their own right.

“This is an area that’s going to be super interesting to watch,” Meath said. “What’s interesting on the investment side is that the traditional life sciences investor universe and the tech universe circles are starting to overlap to a meaningful degree.”

Another manifestation of this tech-pharma overlap is the burgeoning digital therapeutics sector. In addition to low-hanging fruit, such as diabetes management, smoking cessation and weight management, companies are taking on increasingly challenging pain points such as behavioral health.

Asked about the seeming clash of cultures between the worlds of technology and life sciences, Meath said the best scenario in these cross-pollination deals is when investors play to their strengths.

“Life sciences is very much a science-driven investment thesis. Look at biotech – value in a biotech company is data, science, and the progression of that science. It’s different in technology, where they look at different value inflection points. There are enough data points showing companies successfully syndicating deals with a range of investors so people now realize it’s possible to build syndicates that leverage each other’s strengths. In addition to therapeutics, we’re seeing aspects of this in diagnostics and devices, both of which are data heavy. Anyone who’s anyone in healthcare will tell you that the future of healthcare is data.” 

Growth of early stage investment

One trend that appears to be growing is investment at earlier stages of life science companies. Although some investors have consistently focused here, Meath sees a greater number of investors entering the space, even at the early stages of university and medical school spinouts.

“There are quite a few very successful venture investors who have had great relationships with academic institutions, scientists and doctors that have helped them form technologies and spin them out. But what we see is that more academic centers with significant science and innovation are paying greater attention to this opportunity. That can mean building better bridges to the investor universe or helping their scientists and doctors understand what it takes to get commercialization done. We speak with these institutions regularly because we end up banking many of these clients seeded with angel capital. If they haven’t talked about it in the past, they’re talking about it now.” 

One of the biggest trends in healthcare and life sciences in 2020 was the explosion of Special Purpose Acquisition Company (SPAC) deals, and that trend has continued to build this year. Meath regards the development as simply another useful option for companies to meet their needs.

“Just a year ago SPACs weren’t relevant to our companies; now they are very much part of our dialogue. Should they raise a crossover round? Should they look at going public? Should we consider a SPAC deal? It’s yet another branch of the investment tree.

Navigating the industry

Life sciences is always a dynamic industry, but even more so this past year. Businesses will be looking to tap into these changes, with many options to reach their goals.

“A large part of what we do at J.P. Morgan is bring people to the table that can help clients navigate the increasing choice and complexity of capital – that investment tree. Honestly, it’s a great thing for entrepreneurs to have options on how they can grow their company, but it can be very confusing when there are suddenly multiple paths. Many of the headwinds in this industry have been lessened or removed, but deciding which options are best for seeing your vision come to life? That’s where we can help.”



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