A Q&A with leading figures in Investment Banking

How are investors behaving?

A few phrases come top of mind: “cautiously”; “rationale — not panicking”; “practical, in terms of adjusting to work logistics”. For companies and private equity owners, the initial focus was on the portfolio, with many calling down revolving credit facilities, but that urgency appears to have lessened as they grow comfortable with the portfolio or realise there is no quick fix.

There has been lots of talk about being ‘open for business’ but little evidence that any will push the button on deals near term and there has been discussions as to whether this crisis will set a ‘new normal’ when markets return or will be it be more of ‘v-shaped’ recovery, and quickly back to the last 3 to 5 years historical norms. We are aware of the increasing fear in conversations of longer-term nature of this crisis either because of second or third waves of the virus itself or a very gradual lifting of restrictions

(Paul Tomasic, Managing Director, European Head of Healthcare at RBC Capital Markets)

How is the COVID-19 crisis effecting deal making?

Large biopharma is well positioned to execute transactions given their robust balance sheets and continued access to investment grade debt. 52% of small- and mid-cap biotech companies will have less than one year of cash remaining by year-end 2020 and 66% will be in this position by mid-2021.  Notwithstanding the significant volatility and uncertainty, the COVID-19 crisis creates opportunity for win-win strategic transactions between larger and smaller biopharma companies, as each community can fulfil the needs of the other in the current environment.  Smaller biopharma provides a source of rapid and expansive innovation and Bigger biopharma provides capital, and other strategic and operational resources.

Both big and small / mid biopharma will need to assess the impact of the COVID-19 pandemic on operations and intrinsic value (a ‘valuation input’).  Price expectations and the optics of a premium (a ‘valuation output’) will be challenging until perspectives align on a ‘new normal’.  Big biopharma will need to consider the risk that the timing of an approach and / or price appears opportunistic.  Creative, risk-sharing structures will be instrumental in accommodating uncertainty, and balancing the capital and strategic needs of both parties, including CVRs, among other approaches

(Dale Raine, Co-Head of European Healthcare, Lazard)

Scientists are racing to repurpose drugs that have been designed for other conditions – how do you think biotech companies’ initial clinical trials and R&D will fare in 12 months’ time?

It’s worth breaking the trials down into vaccines versus therapies for symptoms which can improve outcomes. On the vaccine side of things, it’s going to be early next year at best before we have phase 3 data from a viable candidate and we would be confident that there will be at least one of those given our understanding of the disease and success with other coronavirus vaccines.

On the therapeutic front there is a wide spread of potential solutions but very little data thus far. We are most confident on the IL-6 studies for cytokine release syndrome as we know this works in other disease areas. However, that will only have a limited impact as it benefits the most serious patients. There is a lot of speculation about the benefits of HIV drug remsdevir and malaria drug chloroquine however we believe they will disappoint either showing no effect or only a modest effect.

(Bidhi Bhoma, Managing Director – Investment Banking at Liberum)

How are digital sources benefiting big investment trends?

Not meeting face-to-face will be a challenge. It is difficult for both investors and sell-side analysts

to take on new clients without physically meeting to build the relationship.  Having said that, few IPO investors are looking for new ideas and we are observing regulators have put temporary measures in place such as the LSE’s AIM waiving the need to see the principle side of operations.

(A leading figure in UK Investment Banking)