Drug pricing debates and uncertainty associated with Brexit are the issues most likely to keep biopharmaceutical executives awake at night. Nevertheless, senior figures remain optimistic about the industry’s prospects in 2020. These are among the major findings of a survey of 500 industry leaders and investors conducted by investment bank Jefferies.
“Nearly half of respondents believe that political and policy uncertainty present the greatest risks in 2020, with the latest Brexit developments and approaching UK and US elections seeing concerns around political volatility growing. In turn, pricing pressure is also a concern as corporates and investors plan for the year ahead,” notes the bank.
Publishing the findings at its annual London healthcare conference, Tommy Erdei, Jefferies’ joint global head and European head of healthcare investment banking believes issues driving political and economic volatility, including Brexit, the China/US trade war and the upcoming US election, will influence and drive many of the conversations taking place at the meeting. “Arguably, this volatility is more pronounced now than it was at the same time in 2018,” he added.
Indeed, as Brexit continues to dominate the UK and, to a lesser but not insignificant extent, the European news agenda, it is probably not surprising that respondents are increasingly concerned. More than two-thirds think Brexit will have an adverse effect on their activities, with a quarter warning the impact will be “very negative” and only 2 percent anticipating a positive impact.
Worries over drug pricing pressure are also growing, especially as there is clear bipartisan support for reform in US political circles, respondents believe there will be no meaningful reform until after the upcoming US election. Indeed, 61 percent of respondents think the likelihood of meaningful reform is low, while only 5 percent think the likelihood is high.
Despite the political rhetoric, a slim of majority of respondents anticipate drug prices to continue rising, albeit at potentially lower rates than previously enjoyed. Only 16 percent expect to see actual price decreases.
While such concerns have undermined a number of biopharma indices – most notably the NASDAQ Biotech Index – investors polled remain positive about the sector’s near-term prospects. Indeed, more than 90 percent of respondents said they expect to either increase their exposure to the healthcare sector or at least keep it steady at current levels. “Private equity investors are slightly more bullish than their institutional counterparts, whose caution has increased over the past year,” the bank added.
Investors believe that small and mid-cap biotechs offer the most upside but they are likely to be those listed in the US. Indeed, the survey highlights the concerns around the ability of European stock markets to support growth companies in healthcare, especially biotech, with 44 percent of participants having a negative view on their ability to fund growth.
On a more optimistic note, Jefferies predicts that there will be strong continued flow of corporate and private equity-led M&A into 2020. “Private equity respondents were far more bullish on their M&A activity than others expect, setting the scene for some potentially outbidding strategic acquirers. At same time, there is a very noticeable shift in the outlook for IPOs, with only 2 percent expecting significant IPO in the markets, potentially reflecting the political macro environment. European growth concerns: 44 percent of respondent cite concerns about the ability of European stock markets to support healthcare growth companies.”