James Baillieu, senior associate at global legal practice Norton Rose Fulbright LLP, lists the trends and developments we can expect to see in the life science sector in the coming years
James Baillieu notes trends in Increasing demand, investment activity, M&A activity, IPOs, alternative forms of financing, personalised medicines, digital health and other new entrants
Increasing demand – Demand for new drugs and medical devices continues to increase, with estimated pharma sales reaching US$1.23 trillion in 2014.[1] Factors, ranging from ageing and increasing populations and huge unmet clinical needs, remain the drivers.
Investment activity is up – Given the huge demand and the recovering economy, investment activity across the sector has ramped up. In the UK alone, venture capital funding in 2014 was US$713 million, up over 41% from 2013. Likewise, IPOs raised over £400 million in 2014, including Circassia Pharmaceuticals and Horizon Discovery Group, among others.
M&A activity is up – Pharmaceutical companies completed or announced a record of over US$500 billion of mergers and acquisitions globally in 2014. Deal activity is driven by the need for companies to replenish their drug pipelines (following patent expirations), dispose of unwanted assets, increase scale and expand into emerging markets. Earn-outs – which link additional payments to the satisfaction of agreed regulatory and/or commercial milestones – remain popular, helping to bridge the valuation gap between buyers and sellers.
IPOs return to London – In the past, UK-based pharma companies often elected to list on NASDAQ in the US, where the pool of investors and analysts are greater than in the UK. While some companies continue to "go West" – such as GW Pharmaceuticals and Adaptimmune– a US listing is no longer considered essential. In addition to those companies that have listed in London (see above), some US companies, like Verseon Corporation, have reversed the trend and listed in London. European companies, like Faron Pharmaceuticals and Unibio, are also exploring London listings.
Alternative forms of financing – Innovative forms of financing continue to develop. For example, royalty financing enables investors to receive a percentage of a company's revenues up to an agreed multiple of their investment. Investors benefit by being able to earn a return immediately rather than having to wait for a traditional exit (such as an acquisition or IPO).
Personalised medicines – In recent years, there has been a growing amount of research into so-called personalised medicines which target specific therapeutic areas or are genetically compatible with a patient. For example, Northwest Biotherapeutics is developing a range of personalised cancer vaccines for some of the most aggressive forms of cancer. Personalised medicines will become more commonplace in the years ahead.
Digital health – Over the coming years, there will be a significant increase in digital technology. Examples include wearable sensors that monitor patient non-compliance and provide real-time data on patient health, ingestible ‘smart’ pills with microchips and novel drug delivery systems. For example, a ‘smart’ pill for schizophrenia made by Proteus Digital Health has recently had its application accepted by the US Food and Drug Administration.[2] The pill contains a sensor which detects when the pill has reached the stomach before communicating with a wearable patch placed on the patient's skin. This patch then onward transmits the information to a mobile device. It remains to be seen whether this ‘smart’ pill will be approved but many similar products are in development.
New entrants – The rise of technological innovation has drawn companies traditionally associated with technology and the internet into the sector. For example, the likes of Google Life Sciences, Samsung Biologics and LG Life Sciences now operate in the sector and in some cases collaborate with traditional players. For example, in 2014 Novartis and Google announced a partnership to develop smart contact lenses that track glucose levels in the tears of diabetics and send the data wirelessly to a mobile device. Tests in humans are due to commence in 2016.
[1] World industry outlook: Healthcare and pharmaceuticals, The Economist Intelligence Unit, May 2014.
[2] US regulators accept 'chip in a pill' application. The Financial Times, 10 September 2015