"While the underlying business model for life sciences companies hasn’t changed as a result of our current environment, we’re seeing that increased capital has been made available to those seeking funding. This makes it an incredibly promising time for the sector."
What did 2020 look like from J.P. Morgan’s perspective and what are some of the initiatives the company has taken on over the past year?
In early 2020, we were bullish about developments in the life sciences sector, but none of us could have foreseen the challenges that the pandemic would bring. The rapid shift towards a remote work environment presented early challenges for biotech companies in particular, as so much of their operations are reliant on R&D in physical lab environments. This is one of the many headwinds that forced companies across the industry to swiftly adapt and evolve their operating models.
On the flip side, the current environment has created new opportunities for life sciences companies. We were already seeing increased investment of private and public capital into the sector, but this was intensified in 2020 as COVID-19 shone a spotlight on the industry and the solutions it can provide. It was a record year for investment in life sciences across almost every category and subsector – 3Q 2020 in particular was the largest quarter on record for venture investment in the sector. Alternative sources of capital also rose, including corporate VC and corporate partnerships, up-front payments and deal terms of partnership deals, and non-traditional investors, including individuals, angels, family offices, corporates, and hedge funds. Mega-rounds of funding continued to increase across biopharma and tools and diagnostics, as well as medical technology.
Our overarching focus over the past year has been on delivering the capabilities, connectivity and network of J.P. Morgan to help our clients navigate this new landscape. Business leaders are facing new challenges around how to operate, bank, raise money, and engage with stakeholders virtually. We have been able to help life sciences companies navigate this evolving environment and equip them with solutions tailored to their unique needs—from day-to-day credit, financing and treasury services, to financial solutions offered across other lines of business, including investment banking, wealth management and more.
Do you believe that there is a renaissance in US manufacturing for life sciences on the horizon?
The impacts of COVID-19 have brought the realities of managing complex supply chains—including the potential risks and instabilities that it can present—to the forefront for life sciences companies. It created an opportunity for many businesses to re-evaluate the management of their supply chain, identify redundancies, and potentially introduce new processes or duplicate partners to create a more resilient supply chain. Across all industries, companies should be having the important conversation about how their supply chain will be managed based on a series of worst-case scenarios.
At the same time, we’re seeing an emergence of personalized medicines, like gene and cell therapy.
Unlike biopharma’s traditional wide-funneled supply chains that are built for volume, personalized medicines tend to have very specialized, complex, and narrow supply chains. This emerging demand is creating an opportunity for domestic manufacturing companies to enter the market or augment their business.
How has COVID and the shift to the virtual environment impacted how business is getting done in the life sciences space?
In some ways, COVID-19 and the digital-first environment have introduced new challenges and increased uncertainty. For example, if a potential investor is looking at a life sciences company’s manufacturing facility, it could be difficult to arrange a walk through that would make them confident enough to invest.
At the same time, we’ve seen expanded capital options becoming available to companies that are looking to scale and drive growth. The injection of interest and investment into life sciences—from corporate partnerships to venture dollars—has opened up new avenues for growth for some of these companies.
Whether in fundraising or partnership conversations, we’re also seeing things get done more quickly in the virtual environment. Instead of flying from New York to San Francisco to set up 10 meetings, companies are able to have 40 meetings in the same period. The speed at which business can happen in a virtual environment is being recognized and it’s something that will continue well beyond the pandemic.
Do you have any concerns regarding the influx of capital in the market?
COVID-19 has shone a spotlight on the life sciences industry and the solutions it can provide, and we’re seeing an acceleration of innovation and investment in this space as a result. I believe this influx of capital is overdue, and a net positive for the sector.
It is important to remember that the life sciences industry remains a science- and technology-driven space, and the value in these companies is built on the progression of science and the positive impact that it drives, rather than on more traditional metrics like customer traction or recurring revenue. The life sciences sector is also more easily quantifiable in the form of clinical data, and venture investors enter the space with the knowledge that science often takes time to progress and can be a longer-term investment.
While the underlying business model for life sciences companies hasn’t changed as a result of our current environment, we’re seeing that increased capital has been made available to those seeking funding. This makes it an incredibly promising time for the sector.