Experts are noting that healthcare is faring well on the investment ‘front’, recession-proof even, but the full scale of the impact of COVID-19 is yet to be realised, especially for life sciences companies requiring substantial investment from public and private sources to commercialise medical research.
In late February 2020, stock markets across the world reported their largest single-week declines since the 2008 global financial crisis (GFC) and further falls in March decimated market confidence too. Now, as share prices climb back up, the capital market ‘crystal ball’ is flooded with dubious calculations and speculation.
COVID-19 remains a big variable. The burning questions everyone wants answered, include: How long will it take for a viable vaccine (or vaccines) to be developed? When will communities be open for business again? And what will happen to the markets in the meantime?
This uncertainty has bred extreme market volatility, with distinct winners and losers emerging. The ASX has experienced an IPO drought in 2020 and so far, only 22 new companies have listed, compared to 64 in 2019 – but of those that have braved pandemic market conditions, 37% are health or biotechnology companies.
At the time of writing this article, the market performance of Australia’s biotechnology sector remains strong. Morgan’s Senior Research Analyst, and AusBiotech Investor Advisory Group member Scott Power, said COVID-19 has marked the busiest chapter of his career.
“The last six months have been very good for life sciences. People are looking to help or benefit from the sector’s response to the virus,” he said.
“We’re seeing a lot of interest in anything to do with remote medicine; software making businesses more efficient; and a structural shift away from full-service hospital models. The market is chasing anything to do with COVID-19 – but it’s a bit of a shiny toy and that could change very quickly.”
Founding Partner of Brandon Capital, CEO of the Medical Research Commercialisation Fund (MRCF), and AusBiotech Investor Advisory Group member Dr Chris Nave, has also cautioned that a capital crunch could be just around the corner.
“There hasn’t yet been a change in the availability of capital. We have a lot of brokers here in Australia reaching out, hoping to take companies public at the moment, and looking to take advantage of the buoyancy that’s happening on the NASDAQ – in the hope it may be replicated on the ASX,” said Dr Nave.
“But speaking very frankly, I think there is going to be a significant capital shortfall over the next 12 to 24 months. This is the worst financial crisis we’ve seen – previous financial crises happened when we were far less connected as a single economy than we are now.”
Dr Nave said the biggest impact of a capital shortfall in the biotechnology sector, albeit speculative, is that Australia risks losing a generation of mid-to-late stage biotechnology companies that could otherwise be a major contributor to the country’s economic recovery at large – so we must stop that from happening.
“It takes at least a decade to get a product to market in this sector, so biotech is at a greater risk. Companies that have had to pause their later stage programmes and clinical trials during the pandemic will be coming back to ask for money – and I am concerned about the ability for the market to support all those companies that need access to more capital.”
Dr Nave’s call is clear – Australian policymakers have a responsibility to ensure the sector is well supported and can access capital, by implementing appropriate support schemes, proactively.
“I understand that in the current environment our policymakers can’t come up with a complex myriad of solutions. But the quickest way they can make an impact is to introduce a capital matching scheme, in partnership with the private sector, to support eligible biotechnology companies that need funding to support the continuation of their programmes.
“History shows that economic recovery is driven by innovation, so this is a time to be increasing our exposure to biotech and other technology sectors, because that’s where the growth is going to come from,” said Dr Nave.
Atomo Diagnostics (ASX:AT1) was one of the only companies to list on the ASX at the height of the crisis in April 2020, completing an oversubscribed IPO that raised $30 million. Its performance since is a strong example of the growth curve Dr Nave speaks about – attributed, in part, to a successful pivot to offer diagnostic solutions for COVID-19.
“We started the listing process to underpin the expansion of our global HIV business and to enable us to commercialise other opportunities in the rapid blood test market – but through the offer period, determined we were also uniquely positioned to make a major impact within the COVID-19 environment,” said Atomo Diagnostics co-founder and Managing Director, John Kelly.
It was a case of right time, right technology for Atomo Diagnostics – but his advice for other companies seeking to raise capital in this climate is to keep a very level head and stay true to the fundamentals of your business model.
“We focused on the things that we do well and not the things we couldn’t control – it was a bit like being in a canoe in a storm, you had to try and stay afloat and try not to worry too much about the waves. That was how we approached the IPO,” said Mr Kelly.
“The market is starting to get very cynical about anyone who finds a COVID-19 story in their bottom draw. The ASX is reviewing these announcements with greater rigour. We have always been very clear that we are an infectious disease diagnostics business, so for us COVID-19 was an obvious part of the story and thankfully we were rewarded for that.”
He remains optimistic about the availability of capital for biotechnology companies with strong foundations and a relevant story to share, within a changing global health landscape.
“The pandemic has confirmed things we’ve been saying for a number of years about the transition of diagnostics into the home and the need for point of care versus centralised labs, which has helped to validate our business plan, our messaging and position in a growth segment that we know is critically important. Healthcare is a recession-proof sector, which will make it more loved in Australia than it has ever been before,” said Mr Kelly.
Dr Nave agrees but said innovation still needs and deserves considered forward planning to remain strong and vibrant.
“It has really been pronounced how lucky our country is to have this critical mass of capability to respond to the pandemic, which has been funded over many years – you just can’t create that overnight. Australia should be really proud of that,” said Dr Nave.
“COVID-19 has put our medical research and biotechnology capabilities up in the spotlight. Our country’s ability to be part of the global response is so important and that is well worth investing in.”
Eager to learn more about navigating investment in the current climate? AusBiotech + Invest 2020, Australia’s largest life science conference, will be delivered online live 28 – 30 October and on-demand. Learn more at ausbiotechnc.org/invest.