Before the onset of Covid-19 the life sciences sector was experiencing high levels of investment and rapid innovation. Months into the pandemic, the sector remains secure, but for how long will this last?

Since the onset of the Covid-19 pandemic, the life sciences sector has been under the spotlight. Not only is the sector under pressure to deliver a vaccine, protective equipment and quick and reliable testing, it has also suffered a significant drop in its mergers and acquisitions (M&A) activity.

Using the US as a market indicator, the 2020 Life Sciences M&A report conducted by law firm Mintz explored deal activity in the sector. US pharma, medical device, diagnostics and biotech deals have dropped in value from $187m in the first quarter of 2019 to just $70m in the same quarter in 2020.

Additionally, when looking at deal activity up to 7 April, the ten highest-value US deals in 2020 for the life sciences sector had all been completed in January and February, indicating a correlation between the progress of the pandemic and M&A activity.

The UK’s Montagu acquired US-based RTI’s manufacturing division for $490m in 2020’s biggest M&A deal as of early July. To add some perspective, Novartis’s acquisition of The Medicines Company for $9.7bn was the biggest deal in 2019.

André Guedel, head of international headquarters for KPMG Switzerland and editor of the company’s biennial Site Selection Report for Life Sciences Companies in Europe, sees slim pickings in the sector.

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“It is probably a lack of opportunities,” he says. “Whether you are a private equity venture capital investor looking into pre-commercial companies, or whether you are interested in an acquisition, there is a lack of opportunities.”

A safer science?

Despite such pessimism, the life sciences sector still seems to have more reasons to feel upbeat than other fields. The UN Conference on Trade and Development’s (Unctad’s) World Investment Report 2020 states that investment promotion agencies (IPAs) around the world expected ICT, food and beverages, agriculture and pharmaceuticals to be the most popular sectors throughout the year for investment projects. Pharmaceuticals in particular is a sector that does not usually rank highly on the radars of IPAs.

Furthermore, the Unctad report outlines that while every company in its top 100 ranking had been affected by Covid-19, pharmaceutical and tech multinational enterprises (MNEs) were the least affected. Of the top 100 MNEs that Unctad tracks in its report, three had actually revised their earnings upward, one of which was Japan’s Takeda Pharma. This proves that pharma companies are currently among the front runners for success despite a tumultuous year.

More generally, the report found that Japanese MNEs had doubled their investments in Europe in 2019 when compared with 2018, focusing mainly on wholesale and retail markets, and the chemical and pharmaceutical sectors.

The sector is not without its barriers, however, as R&D has seen a substantial slowdown. This is due to access to lab space and patients for clinical trials being impacted by lockdown restrictions. As a result, it is widely expected that the next 12 months will see fewer new drugs approved, and consequently fewer attractive M&A targets.

Buyers are likely to respond by looking for companies that are already embracing tech solutions and finding innovative ways to speed up manufacturing and drug development. For this, advanced manufacturing and industry 4.0 could offer some solutions. Guedel agrees that industry 4.0 and the life sciences sector go hand in hand.

“[Industry 4.0] is actually just a reflection of the increased complexity of manufacturing processes,” he says. “These processes need environments that are extremely resilient, robust and have a great infrastructure and quality of workforce. They need the capacity to offer financial purchase stability.”

Thinking small

When considering site selection for the life sciences sector, Guedel stresses that bigger is not always better.

“I see a shift towards [smaller operations],” he says. “I am not saying that these big manufacturing plants for chemicals and pharmaceuticals are a thing of the past, but what I see more is smaller manufacturing plants.”

He explains that this could open up new greenfield opportunities, saying: “Even countries that were not considered very attractive [investment opportunities], they might become attractive, just because they have a laboratory that is producing smaller batches, and they can set up a small manufacturing plant.”

This could lead to the delocalisation of life science manufacturing, according to Guedel.

“There will be less of a concentration [of life science manufacturers] and more delocalisation to smaller places where you find a qualified workforce,” he says.

As manufacturing operations are shrinking, does this mean that the niche skills that the sector seeks will shrink as well? When pressed to highlight a region that has smaller operations, but more specialised workforces, Guedel advises that it is best to look at specific workers rather than general locations.


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“[Look for] regions with specialisation points in their university systems,” he says. “Scientific know-how is key and so is the availability [of skilled workers] who will stay in the region.”

Guedel cites as an example the University of Basque Country in northern Spain, which “may have one person who is doing some specialist things, who has a few team members around him. They are then behind something that can become interesting.”

Guedel does highlight Europe as a good example of a region that is nurturing talent.

“In certain countries in continental Europe there are apprenticeship programmes,” he says. “You can find people aged 20 who have already spent three to four years in apprenticeships for chemical or bioprocessing. These people are already available, they are not very expensive, and they are extremely well-trained,” he says.

A learning curve

With innovation being so crucial to success in the life sciences sector, universities – and their respective talent – are often high up on a would-be investor’s agenda.

A recent investment by the Epidarex Capital III fund highlights this symbiotic relationship. Epidarex has raised £102.1m to invest in new life science businesses from emerging research hubs, including spin-outs from a string of universities. Typical investments are expected to range from £2m to £5m.

The British Business Bank has committed £50m to the project from its Enterprise Capital Funds programme. Alongside this, the universities of Aberdeen, Edinburgh, Glasgow and Manchester, the Strathclyde Pension Fund and several global investors have backed the fund.

The first investment of £2.65m went to a spin-out from the University of Leeds named Lunac Therapeutics.

Despite such promising developments, Guedel warns against being too optimistic.

“Generally, in markets, everything is going to life sciences,” he says. “If all the money’s going in one direction, it is usually not the best time [to invest]. In the short term or even medium term, you might have great opportunities, but is that a wise investment in the long term? We don’t know.”