As the coronavirus pandemic rages on, biopharma companies are being forced to respond to multiple challenges that could derail their existing business plans. Already companies are reporting that, in therapeutic indications not involving COVID-19, their ongoing and planned clinical trials are being interrupted or delayed by the pressures now being imposed on global health care systems. Also, on the financial front, there is mounting evidence that access to follow-on financings is drying up for public companies, and a prolonged economic downturn as a result of the pandemic could eventually strain the existing cash resources of pre-cash flow companies.
“Following a U.S. shutdown due to the coronavirus pandemic, the month of March had the fewest number of biopharma follow-on public offerings for each of the last 10 years,” commented BioWorld analyst Karen Carey.
Heading into the close of the quarter, BioWorld recorded only eight transactions for the month, generating a total of $484 million. In terms of deal volume, it represents about a third of what was concluded during March in 2019 (24), collectively generating almost $2.7 billion.
Eyeing the bottom line
If that trend continues for the next two quarters, a number of companies will certainly be looking to tighten their belts as their bank balances become depleted. In a research note about this situation, RBC Capital Markets analyst Brian Abrahams wrote, “With volatile financial markets and social distancing impairing normal course business, we believe there is increasing focus on balance sheets and cash cushion especially among unprofitable biotechs, Our sense is that investors are sharpening their focus on the ability of promising pre-cash flow companies to weather the immediate crisis and potential prolonged economic downturn.”
An analysis of the cash positions and runways for currently unprofitable companies under RBC Capital Markets coverage, using burn estimates and assuming no additional anticipated raises or up-front fees for potential partnerships, they found that the majority of these “appear to have significant cash runways of 18 [months or more], likely facilitated by the favorable capital window we have experienced in the past several years.”
It is fortunate that the sector has had no difficulty in raising capital. According to BioWorld data, in the five-year period 2015-2019, global follow-on offerings have generated a total of $136 billion.
Since development-stage public biopharma companies often lever positive clinical data for follow-on financings, the fact that they are suffering trial delays could impact their cash runways, and add pressure for those with shallow cash balances, noted analysts at Mizuho Securities USA LLC. The firm provided data from a survey of the cash runways and cash differentials for emerging biotechnology companies with negative net incomes and a minimum market capitalization of $100 million. What they found was an average cash runway of 7.7 quarters for 230-plus sampled companies, “suggesting a substantial number of companies will be able to ride out market disruptions, though we believe that pressure could mount should cash runways compress to an average of four quarters.”
Biotechnology companies have always been creative during times when the financial markets become unresponsive, resorting to partnerships as well as creative financial vehicles such as private and registered offerings and at-the-market financings.
For now, it looks like the situation does not appear to be critical, but a U.S. biotechnology industry survey among 102 executives and IR professionals from the 100-plus biotech companies within J.P. Morgan’s coverage universe on the impact of COVID-19 did reveal that the sector recognizes it is going to take a hit in various degrees in several key areas, particularly capital raising, clinical trials and new/recent drug launches.
A recent example of this was seen with the pandemic affecting a new drug launch. Although Bristol Myers Squibb Co. won FDA approval last week for its immunomodulator, ozanimod, branded as Zeposia, it said that, with the country’s health care system busy dealing with the unprecedented pandemic, it will delay commercialization of the drug, an oral treatment for adults with relapsing-remitting multiple sclerosis and active secondary progressive disease, as it continues to "monitor the environment." Final pricing is on hold until launch. An EMA decision on the MAA for the drug is expected by midyear.
BioWorld, in its extensive ongoing coverage of COVID-19, has recorded about 35 clinical trials that have been impacted by the pandemic to date. The latest company to adjust its plans is Dicerna Pharmaceuticals Inc., of Lexington, Mass., which has reevaluated its ongoing clinical development milestones in response to the COVID-19 pandemic. Those include the Phyox 2 pivotal trial of nedosiran for primary hyperoxaluria, where it is working closely with local institutional review boards to implement a protocol amendment that would allow for the transition of remaining site visits to at-home nurse visits for drug administration and safety follow-up. Based on current enrollment and temporary suspension of further clinical trial activities at multiple sites, the company no longer expects to complete enrollment in the study in the second quarter of 2020 as previously projected and is reevaluating the clinical plan.