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Description : This report in the form of PowerPoint presentation by Torreya is giving Update on the Financing and Deal Environment in Biopharmaceutical Sector. The report talks about Biopharmaceutical Sector, biopharma companies, NASDAQ Biotech Index, biopharma innovation, venture financing activity, IPO market, effects of COVID-19 pandemic, Pharma Licensing etc.

Tags : Global pharma, Biopharmaceutical Sector, pharmaceutical industry, Biotech, healthcare, pharma, biopharma companies, biopharma innovation, venture financing activity, COVID-19, pandemic, Pharma Licensing

Published on : Jun 28, 2020 | Views : 1216 | Downloads : 0

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1 Biopharmaceutical Sector Update on the Financing and Deal Environment May 29, 2020 © 2020. All rights reserved. Securities offered in the United States are offered through Torreya Capital LLC, Member FINRA/SIPC. In Europe such services are offered through Torreya Partners (Europe) LLP, which is authorized and regulated by the UK Financial Conduct Authority.
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Summary of Key Points The NASDAQ Biotech Index hit an all time high on May 20, 2020. The strong market has not benefitted all biopharma companies. More than a third of NASDAQ Biotech Index constituents are down for 2020. Companies in the specialty pharma sectors have underperformed relative to companies carrying out research on more innovative molecules, reflecting a sector shift into biopharma innovation. This effect is particularly pronounced in the small cap specialty pharma group. Private venture financing activity has been robust, at close to record levels all year. Public company follow-on equity activity has been at close to an all time record in May 2020. The IPO market has not been as strong thus far in 2020. The private debt market is open with five issuances in the week of May 18th. However, this market remains soft, reflecting abnormally high credit spreads in the broader high yield bond market. On the biopharma M&A front, deal activity has been quiet, reflecting an industry that has been largely focused on the COVID-19 pandemic. Both deal count and dollar volume of M&A have been at the lowest point in recent memory since 2020 began. Pharma Licensing activity has been at a normal level in recent months. 2
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Table of Figures
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2500 2000 1500 1000 500 0 3000 3500 4000 4500 Oct-93 Jun-94 Feb-95 Oct-95 Jun-96 Feb-97 Oct-97 Jun-98 Feb-99 Oct-99 Jun-00 Feb-01 Oct-01 Jun-02 Feb-03 Oct-03 Jun-04 Feb-05 Oct-05 Jun-06 Feb-07 Oct-07 Jun-08 Feb-09 Oct-09 Jun-10 Feb-11 Oct-11 Jun-12 Feb-13 Oct-13 Jun-14 Feb-15 Oct-15 Jun-16 Feb-17 Oct-17 Jun-18 Feb-19 Oct-19 NASDAQ Biotech Index, 1993-2020 4 Recent movements in the NASDAQ Biotech Index have been small relative to historical market breaks. NASDAQ Biotech Index hit an all time record last week The NASDAQ Biotech Index fell 28% at its low between the Feb 20 and March 15, 2020. The Index is up overall during the COVID-19 pandemic. Overall, the NBI is at an all time record closing at 4,202.55 on May 20, 2020. Source: Data from NASDAQ
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Understanding the Nasdaq Biotech Index Returns 5 Index returns can give a distorted view of what is actually going on in the market. The NASDAQ Biotech Index is a market weighted index of 207 biotech shares. We looked at the returns on each of the constituents from Jan 1, 2020 to May 26, 2020 The index overall was up by 10.7% in this period. We found that if three stocks were omitted from the index, the returns for the year would have been 60% less. The stocks were Gilead, Moderna and Regeneron. All three companies have had outstanding returns due to their potential development of COVID-19 therapies in recent months. It’s important to note that the median return on the components of the Index has been 2.1% from the beginning of the year. More than a third of index constituents are down for the year.
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Share Returns by US Biopharma Segment* (this analysis excludes eight companies with high returns due to COVID-19 programs) 6 -30% -25% -20% -15% -10% -5% 0% 5% 10% Percentage Change in Share Price (Div adjusted) YTD * We defined companies as being in biotech if they did not yet have an approved product, as being a COVID virology leader if they have received significant publicity for contributions to COVID pharmacology in recent months (e.g., Gilead, Regeneron), as a specialty pharma company if they market a commercial product that is not based upon an NCE (but rather a reformulation of an existing product) or even a branded generic, a generics company if they market INN products that have lost patent protection and as an innovative pharma company if they market on patent new chemical entities (e.g., big pharma, companies like Vertex, companies with recent approvals such as Esperion Therapeutics. We have seen a strong rotation out of less innovative companies and into innovative biotech companies. Players in generics and reformulations (e.g., 505b(2)’s) have not fared well. Not shown are eight companies who had significant progress on COVID-19 treatments. The median return of these companies is 290% in the Jan 1 to May 26, 2020 period. Median Returns by Pharma Segment of US Firms Jan 1, 2020 to May 26, 2020, Analysis of 428 Public Companies Big Pharma, -1% Biotechnology, 3% Generic Pharma, -10% Innovative Commercial Pharma, -10% Specialty Pharma, -23%
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Share Returns in US Biopharma Segment* (this analysis excludes nine companies with high returns due to COVID-19 programs) 7 * We defined companies as being in biotech if they did not yet have an approved product, as being a COVID virology leader if they have received significant publicity for contributions to COVID pharmacology in recent months (e.g., Gilead, Regeneron), as a specialty pharma company if they market a commercial product that is not based upon an NCE (but rather a reformulation of an existing product) or even a branded generic, a generics company if they market INN products that have lost patent protection and as an innovative pharma company if they market on patent new chemical entities (e.g., big pharma, companies like Vertex, companies with recent approvals such as Esperion Therapeutics. Source: Data from CapIQ Investors rotated from small caps into large caps, impacting returns across the sector. This effect has been particularly marked in the specialty pharma sector. Microcap (market cap < $200mm), 0.0% Small cap ($1bn > market cap > $200mm), 4.0% Mid cap ($10bn > market cap > $1bn), 6.0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Percentage Change in Share Price (Div adjusted) YTD Median Biotech Returns by Capitalization Jan 1, 2020 to May 26, 2020 Microcap (market cap < $200mm), - 27.0% Small cap ($1bn > market cap > $200mm), -36.0% Mid cap ($10bn > market cap > $1bn), 1.0% -50% -40% -30% -20% -10% 0% Percentage Change in Share Price (Div adjusted) YTD 10% 20% Median Specialty Pharma Returns by Capitalization Jan 1, 2020 to May 26, 2020
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8 The Last Three Months Have Been the Strongest Period for Venture Equity Financing in a Year (extrapolated) $3.9 $2.5 $1.2 $2.5 $2.5 $1.8 $2.5 $1.3 $2.2 $2.2 $2.4 $1.7 $1.7 $2.4 $3.2 $2.7 $2.8 $1.0 $0.5 $0.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 Jan19 Feb19 Mar19 Apr19 May19 Jun19 Jul19 Aug19 Note: May 2020 volume is extrapolated based on volume through May 28th. Data from Crunchbase. Sep19 Oct19 Jan20 Nov19 Feb20 Dec12 Mar20 Apr20 May20 Biopharma Sector Private Venture Equity Issuance ($ Billions) Dollar Volume of Biopharma Venture Equity Financings by Month Jan 2019-May 2020, $Billions
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Largest Private Venture Financings: Year to Date We count 31 deals thus far in 2020 that were $100mm or more in size 9 Source: Crunchbase and S&P Capital IQ
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Biopharma IPO Activity, 2013-2020 (US Exchanges) 10 There were Four IPO’s in Mar 2020, one in April and none in May. The market has been quite slow since Nov 19. Source: Data from CapitalIQ 0 2 4 6 8 10 12 0 500 1000 1500 2000 2500 Jun11 Aug11 Oct11 Feb12 Aug12 Nov12 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 Jul16 Sep16 Nov16 Jan17 Mar17 May17 Jul17 Sep17 Nov17 Jan18 Mar18 May18 Jul18 Sep18 Nov18 Jan19 Mar19 May19 Jul19 Sep19 Nov19 Jan20 Mar20 May20 Number of IPOs in Month IPO Volume ($ millions) NASDAQ / NYSE Biopharma IPO Volume, 2011-2020 IPO Count IPO Dollar Volume ($mm)
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Biopharma Follow-On Equity Activity, 2013-2020 11 Source: Data from CapitalIQ 0 5 10 15 20 25 30 35 40 0 500 1000 1500 2000 2500 3000 3500 4000 4500 Jun 13 Aug 13 Oct 13 Dec 13 Feb 14 May 14 Jul 14 Sep 14 Nov 14 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Sep 18 Nov 18 Jan 19 Mar 19 May 19 Jul 19 Sep 19 Nov 19 Jan 20 Mar 20 May 20 Number of follow-ons in month Deal Volume ($ Millions) The volume of follow-on equity offerings in March 2020 was down significantly. In contrast, May 2020 has been a very strong month. Volume of Biotech Equity Follow-Ons in the US, June 2013-May 2020 Dollar Volume Offerings
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May 2020 Has Been the Second Strongest Month in History for Equity Follow-ons in US Markets 12 $5,739 $5,583 $4,310 $3,975 $3,716 0 5 10 15 20 25 30 35 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Jan 2018 Number of Follow-Ons Offering Volume ($ millions) Largest Months for US Biopharma Equity Follow-ons in History, 1991-2020 ($ Millions) Volume Deals May 2015 May 2020 Jan 2020 Jun 2015 Note: May 2020 volume is estimated as actual for May 1 to May 25 times 1.2 to adjust for the remaining business days in the month.
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13 Private Debt Market Continues to be Soft Source: Data from Torreya’s internal database of life science debt issuances. 9 18 13 8 9 9 8 19 8 10 10 10 11 14 5 4 17 14 12 10 14 8 16 13 9 6 11 10 2 4 6 4 7 5 6 0 5 10 15 20 Monthly private debt deal count has been weak since late 2019. For example, in April/May 2020 there have been 11 debt issuances. This compares to 24 deals a year ago and 20 the year before that. Private Life Sciences Debt Transaction Volume Per Month, June 2017-May 2020 25 20 Deal Count
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14 Credit Markets Have Improved but Not Normalized Since the COVID-19 Pandemic Began Source: Federal Reserve Bank of St. Louis, FRED database. 10/4/19 11/4/19 12/4/19 1/4/20 2/4/20 3/4/20 4/4/20 5/4/20 HIGH YIELD INDEX BOND YIELD LESS EQUIVALENT TRESAURY YIELD The spread between high yield bonds and equivalent maturity Treasury bonds in the US has gone from under 4% prior to the pandemic to a high of 11% and is now at 7%. Given that private life science credits are less liquid than these bonds and generally have higher default risk, lenders have been under pressure to meet borrowers expectations of pricing on debt. BofA US High Yield Index Spread Over Treasury (OAS) 12 10 8 6 4 2 0
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15 Royalty Monetization Market Remains Strong Note: Volume numbers for 2020 are annualized. Source: Data from Torreya’s internal database of royalty monetization transactions. 0 2 4 6 8 10 12 14 16 18 0 500 1000 1500 2000 2500 3000 3500 4000 4500 2011 2012 2013 2014 2015 Deal Volume ($millions) 2016 2017 2018 2019 2020 (Annualized) Number of Deals Royalty Monetization Volume ($mm) The pace of royalty monetizations is on track to hit a record in 2020. This market is open and remains well funded. Pharmaceutical Sector Royalty Monetization Volume in Life Sciences, 2011-2020 Number of Deals
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$40.5 $67.0 $29.8 $89.8 $69.8 $26.5 $26.1 $37.3 $50.1 $22.9 $30.2 $15.1 $46.0 $10.8 $26.0 $29.2 $29.5 $105.3 $15.6 $24.8 $96.7 $125.3 $67.6 $38.3 $11.4 $8.1 0 20 40 60 80 100 120 $0 $20 $40 $60 $80 $100 $120 $140 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 (Extrapolated) Deal Count Quarterly M&A Volume ($ Billions) Global Biopharmaceuticals M&A Volume, Q1 2014 to Q2 2020 Volume ($bn) Deals Biopharma M&A Activity Slow This Year (inclusive of commercial asset sales and deals in pharma, biotech, OTC, CDMO areas) 16 While we are seven weeks into the new quarter, M&A activity in biopharma has been very quiet (the M&A level here has been extrapolated out for the whole quarter). Thus far, 2020 has been the slowest period for M&A activity (dollar volume and deal count) in recent years. Source: Data from CapIQ
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Biopharma M&A Activity Year to Date (inclusive of mergers & acquisitions in pharma, biotech, animal health, OTC, and CDMO areas) 17 Source: Torreya Pharma M&A database and S&P CapitalIQ
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Commercial Asset Sale Activity Year to Date (inclusive of asset sales in pharma, biotech, animal health, OTC, and CDMO areas) 18
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$11,432 $10,222 $5,914 $4,247 $13,719 $24,098 $16,490 $13,871 $19,154 $29,067 $25,018 0 100 200 300 400 500 600 700 800 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (Annualized) Number of Transactions Transaction Value ($ millions) Volume of Pharmaceutical Industry License Deals Per Month All License Types, 2010-2020 Value Deals Annual Worldwide Pharmaceutical Licensing Activity 19 Notes/Sources: BioPharm Insight data. We extrapolated 2020 volume for the for period Jan 1 to May 25 out to the full year. Deal value is estimated as the sum of the upfront payment plus 25% of all other milestone payments. Unlike the M&A market, licensing deal count in 2020 is at a record level and dollar volume is not far behind. We believe that this reflects long-term secular trend of growth of the sector and associated transaction activity rather than anything remarkable about 2020 itself.
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71 53 44 41 54 55 65 37 50 69 64 71 82 50 48 57 52 42 68 43 57 57 48 63 86 36 59 53 51 30 20 10 0 Jan18 Feb18 Mar18 Apr18 May18 Jun18 Jul18 Aug18 Sep18 Oct18 Nov18 Dec18 Jan19 Feb19 Mar19 Apr19 May19 Jun19 Jul19 Aug19 Sep19 Oct19 Nov19 Dec19 Jan20 Feb20 Mar20 Apr20 May20 (extrapolated) 40 50 60 70 80 90 100 The volume of pharma licensing deals in 2020 has been similar relative to activity in 2018 and 2019. Number of Pharmaceutical Industry License Deals Per Month Monthly Worldwide Pharmaceutical Licensing Deals 20 Notes/Sources: BioPharm Insight data, we extrapolated May 2020 volume for the full month as of May 25th. Monthly median: 55 deals
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Torreya Update 21
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Torreya is a Global Healthcare Investment Banking Firm We are known for: Deep Relationships We have strong personal relationships across the pharmaceutical and healthcare sectors. Operating Perspective Many of our senior colleagues come from industry and bring decades of experience. Deal Excellence Torreya is known as a firm that gets tough deals done. Our team is skilled in highly structured transactions. Healthcare Focus Our healthcare focus spans pharma, biotech, bioproduction, pharma services, physician services and HCIT. Generic Pharma Specialty Pharma Divestiture / Specialty Pharma Royalty / Specialty Pharma Mergers & Acquisitions Licensing, Asset Sales & JVs Debt, Royalty Sales & PE Recaps Bioproduction Specialty Pharma Biotech Asset Sale / Biotech Licensing / Biotech Licensing / Biotech JV / Specialty Pharma PE Recap / Generics Debt / Specialty Pharma Debt / Healthcare Services PE Recap / CRO Representative Transaction Work 22
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We are a Leader in the Areas We Serve 23
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Global Focus and Reach 24 Life Sciences advisory in North America, Europe and Asia Focused on strategic transaction work M+A: Corporate & asset-level Royalty monetizations Licensing Acquisition financing Recapitalizations Torreya’s Europe office is in London – home of 8 employees and advisors. Torreya’s U.S. office is in New York – home of 28 employees and advisors. London New York Mexico City Rio de Janeiro Riyadh Hong Kong Mumbai Beijing Shanghai Moscow TORREYA AFFILIATE RELATIONSHIP* Seoul Tokyo Torreya’s India office is in India – home of 5 employees. * Key affiliate partners are Kybora in Africa and MidEast; Novus Capital in Russia; Natixis in China and Korea; Panarea in Latin America; and GCA in Japan.
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Deals Advised by Torreya Thus Far in 2020 Sale of majority stake to $30 million February 2020 License of Navicixizumab to Up to $306 million January 2020 Investment by January 2020 Debt financing by Undisclosed February 2020 License of Ferracru® in China to $62.8 million January 2020 Collaboration for its gynaecological business in Nepal and India with January 2020 Sale of Ryaltris® to February 2020 Sale of majority of sponsor owned generic pharma company $115 million May 2020 Distribution Agreement with February 2020 Disposal of stake in $68 million May 2020 Torreya has worked with a number of life science clients to complete essential deals in 2020. We are a leader this year in both deal count and deal volume in biotech, CDMO deals and generic deals. 25
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Disclaimer should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. Torreya does not provide any tax advice. Any tax statement herein regarding any U.S. federal or other tax is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties. Any such statement herein was written to support the marketing or promotion of the transaction(s) or matter(s) to which the statement related. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. This presentation does not purport to be all-inclusive or to contain all of the information that the Company may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation. The distribution of these materials in certain jurisdictions may be restricted by law and, accordingly, recipients represent that they are able to receive this memorandum without contravention of any unfulfilled registration requirements or other legal restrictions in the jurisdiction in which they reside or conduct business. By accepting these materials, the recipient agrees to be bound by the foregoing limitations. Insofar as these materials originate in the United Kingdom or are capable of having an effect in the United Kingdom (within the meaning of section 21 of the Financial Services and Markets Act 2000) they are directed only at classes of recipient at whom they may lawfully be directed without contravening that section or any applicable provisions of the Conduct of Business Sourcebook of the Financial Conduct Authority, including persons of a kind described in Article 19 (Investment professionals) or Article 49 (High net worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and are not intended to be distributed or passed on, directly or indirectly, to or relied or acted on, by any other class of persons. Torreya (Europe) LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is not acting for you in connection with any potential transaction(s) described in these materials and thus will not be responsible for providing you the protections afforded to clients of Torreya (Europe) LLP or for advising you in connection with any potential transaction(s) as described in these materials except and unless subject to a subsequent specific written agreement relating to such potential transaction(s) between you and Torreya (Europe) LLP. Torreya (Europe) LLP is authorised and regulated by the Financial Conduct Authority. Securities offered in the United States are offered through Torreya Capital LLC, Member FINRA/SIPC. 26 This presentation may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Torreya. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the Information contained in this publication without obtaining specific professional advice. The information used in preparing these materials was obtained from or through public sources. Torreya assumes no responsibility for independent verification of such information and has relied on such information being complete and accurate in all material respects. No representation, warranty or undertaking, express or implied, is made and no responsibility is accepted by Torreya as to or in relation to the accuracy or completeness or otherwise of these materials or as to the reasonableness of any other information made available in connection with these materials (whether in writing or orally) to any interested party (or its advisors). Torreya will not be liable for any direct, indirect, or consequential loss or damage suffered by any person as a result of relying on any statement contained in these materials or any such other information. None of these materials, the information contained in them or any other information supplied in connection with these materials, will form the basis of any contract. To the extent such information includes estimates and forecasts of future financial performance (including estimates of potential cost savings and synergies) prepared by or reviewed and discussed with the managements of the Company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecast obtained from public sources, represent reasonable estimates). There is no guarantee that any of these estimates and projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. Torreya expressly disclaims any and all liability relating or resulting from the use of this presentation. Torreya assumes no obligation to update or otherwise review these materials. These materials have been prepared by Torreya and its affiliates and accordingly information reflected or incorporated into these materials may be shared with employees of Torreya and its affiliates and agents regardless of location. This presentation speaks only as of the date it is given, and the views expressed are subject to change based upon a number of factors, including market conditions. Distribution of this presentation to any person other than the recipient is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of Torreya. This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instrument. You

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