As the global number of confirmed COVID-19 cases soared past the one-million-mark last week, the United States has slowly climbed to the top of the list of most affected countries. While it is difficult to comprehensively detail the full breadth of the virus’ far-reaching consequences, this blog takes a look at the effect the pandemic is having on biotechs and what, if anything, such companies can do to weather the storm.
The social distancing guidelines blanketing most of the U.S. (and wider world) are heavily impacting health care centers, which typically conduct randomized trials in partnership with biotechs/Contact Research Organizations (CROs) and are now instead filled with patients seeking medical care. As per a recent entry in the Journal of the American Medical Association, these efforts interfere with all aspects of a successful clinical trial: “efficient accrual and randomization, intervention adherence and delivery, and outcome collection.”
Furthermore, Clinical Research IO recently conducted a survey of 73 research sites across a range of therapeutic indications between March 19-23, 2020. 24% of those polled were no longer enrolling new patients due to safety concerns. 37% of the remaining 76% of survey participants were considering pausing new patient enrollment. Therefore, it is not too far-fetched to infer that the number of sites no longer enrolling new patients will increase as the U.S. continues to see a rising number of cases and fatalities. Trial delays will in turn lead to slower drug development as well as delays in the eventual commercialization of new treatments.
With the Nasdaq Biotech Index (NBI) dropping around 10% in March (and individual biotech names falling much more), public and private-focused funds will likely tread conservatively in deploying unallocated capital. Anecdotally, recent outreach efforts on behalf of a number of public and private companies have underscored a common thread–a near-term focus on existing portfolio companies. PitchBook recently published a research report echoing that sentiment: “For private equity—in many ways a bet on future economic growth—that means first looking to secure current investments before sourcing new deals.” New deals may not be a complete non-starter, but they face significant challenges in the current environment.
As uncertainty over the spread and full implications of COVID-19 rattles the markets, it also creates a volatile and risk-averse environment for new entrants. Consequently, a number of companies are delaying their IPOs. Renaissance Capital characterized this volatility in mid-March as having “essentially shut down the spring IPO market.” Furthermore, the IPO research firm wrote that it anticipates a “narrower IPO window” in the summer (assuming some kind of recovery), with hopeful companies instead looking to the fall for their IPOs.
Today’s biotechs are essentially lean, virtual companies with minimal staff, made possible by outsourcing a number of functions. Having to work remotely is presenting collaborative challenges, as internal communication and momentum become harder to execute. Limitations on travel preclude networking opportunities at conferences, which are either being cancelled or changed to a (less than ideal) virtual format.
The outsourcing of studies and trials to CROs is common nowadays, but the coronavirus pandemic has diminished CROs’ ability to conduct and manage these studies (much in the same way that biotechs own internal structures are being affected), with some companies “hearing crickets” from their previously attentive partners. As of April 2, the FDA urged CROs to take a virtual approach to clinical trials in response to COVID-19, advising of “potential challenges” with the closure of clinical sites and interrupted supply chains. Additional recommendations suggest alternatives for safety assessments such as: “phone contact, virtual visit(s), [and] alternative location(s) for assessment, including local labs or imaging centers.”
How much longer will the current situation last?
The short answer: no one knows. Successful containment largely depends on citizens’ adherence to mitigation guidelines, such as social distancing. Some U.S. states have not yet issued stay-at-home orders, further underscoring the potential of interstate travel to become a vehicle for a second wave of infection.
Additionally, expectations of a “summer lull” in the pandemic (the idea that COVID-19 may be seasonal like flu) may not fully bear out. Dr. Marc Lipsitch, professor of epidemiology and director of Center for Communicable Disease Dynamics at Harvard, recently cited the hot and humid climates of Australia, Singapore and Hong Kong when stating: “It’s really clear that warmer weather does not stop the transmission or growth of the virus.” His projection went on to describe a slower growth of transmissions during summer, but not to a level that would decrease the number of cases.
Meanwhile, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID), has warned of a second wave of coronavirus infections hitting the U.S. in the fall of 2020.
All of the above certainly underscores the possibility that the new conditions under the COVID-19 crisis could persist for a long time to come, at least until a vaccine is developed.
When will a vaccine come?
Not any time soon. In the U.S., Johnson & Johnson and Moderna, Inc. appear to be at the front of the race to move forward with human trials of their respective coronavirus vaccines. The Biomedical Advanced Research and Development Authority (BARDA) announced their support for both programs on March 30th in hopes of speeding up the timeline.
J&J’s vaccine candidate will begin its Phase 1 clinical trial by September 2020 at the latest, with a goal of making the vaccine available for emergency use in the U.S. in early 2021. While Moderna is looking at the possibility of utilizing the vaccine under emergency use protocols this fall, a commercially available vaccine is unlikely to be available for widespread use for at least 12-18 months.
German biotech companies BioNTech and CureVac are also leading COVID-19 vaccine development efforts. BioNTech will begin a 150-person trial later in April, while CureVac’s timeline for human testing starts in June. Both have asked governments to ease regulations for late-stage clinical trials in order to expedite development.
Once successfully tested, the widespread distribution and delivery of a coronavirus vaccine will also take time. Production ramp-up could be problematic given the sheer demand for product. Thus, given current projections, large-scale vaccinations in 2020 are unlikely.
Given all the above, what strategy should biotechs follow?
In short: stay the course. Faced with unexpected operational challenges and market volatility, biotechs should focus on fundamentals and long-term value. In other words, continue developing your assets as best as you can so as to create value and ride out the storm. Companies might be tempted either to shut up shop or slash costs (and some employees may be tempted to see working from home as “extended vacation”), but in truth a biotech’s survival path is dependent upon furthering the development of its assets as best it can in any situation.
Having said that, now is a good time to keep your friends close. By “friends” we mean supportive shareholders, strategic partners, and the providers of grants and other forms of non-dilutive funding. This means maintaining communication with your top stakeholders. Remember that other companies are in the same situation you are–facing trial delays and funding moratoriums. Delaying an IPO or funding round and adjusting your timeline due to market conditions is understandable, and best accompanied by clear and transparent messaging. To that end, be sure to communicate only what is known and continue trying to always “under promise and over deliver.” If you would like any guidance during this time, contact our team today.
Serge Yusim, Analyst