Coming off a 2021 marked by substantial deal activity, the Canadian life sciences sector is experiencing a market correction.
Investors are exhibiting a more cautious and selective approach to investment decisions amid public and private market uncertainty. To date in 2022, in the United States and globally, we have seen smaller deal sizes at lower valuations in life sciences.
Despite this less favourable financing environment, deal activity in Canada is substantial and the sector is expanding both in volume and quality of companies. In certain subsectors, such as the use of artificial intelligence (AI) for drug development as well as radiopharmaceuticals, Canada has become a global leader. We have also seen an increasing robustness of activity in the digital healthcare and telemedicine sub-sector. Below, we explore some of these innovation and transactional trends and what they mean for the Canadian life sciences sector.
Life sciences innovation: two use cases
Continued emergence of artificial intelligence
As virtual healthcare advances, the amount of available health data will continue to increase. AI’s value is in its ability to collect, store and aggregate these complex data sets, and use sophisticated mathematical algorithms to identify trends and predict outcomes. For example, AI programs can be leveraged to scan a vast set of recorded symptoms to draw upon similarities and develop personalized treatment options. AI methodologies can be used to monitor parameters for health indicators to predict optimal treatments tailored to a patient’s predispositions and lifestyle. AI can also facilitate cost-effective and time-efficient clinical trials by identifying the appropriate populations to target. Further, AI platforms are useful in automating the data management process to mitigate the inefficiencies of manual clinical trial methods of data collection and analysis. An additional hallmark of AI is its ability, through machine learning, to store and cross-reference large sets of data. This is valuable to companies engaged in drug discovery because it helps them reduce time and costs associated with molecular research activities and the overall drug discovery life cycle. Lastly, AI is helpful in pharmacovigilance compliance, especially as adverse event reporting grows by approximately 10-15% annually1. AI can automate and centralize the intake of adverse event reports and streamline the investigation and correction phases of pharmacovigilance efforts.
The evolving landscape through which healthcare is delivered is well-suited to the emergence of AI in treatment and research, and it appears life sciences stakeholders are adapting accordingly.
Greater adoption of telemedicine and digital healthcare
In the past couple of years, telemedicine and digital healthcare applications overall have solidified their position as vital pillars of the ecosystem.
COVID-19 has shifted consumer preferences; patients are placing a greater emphasis on proactively and preventatively managing their personal health. Digital healthcare tools offer the versatility and accessibility necessary to meet consumer demand for personalized health options. This trend toward digital healthcare is gaining traction with patients, healthcare organizations and payers2.
Like many industries, and perhaps more so because human health is so fundamental, there will always be demand for versatile and adaptable solutions that deliver high-quality results. Telemedicine is changing how we communicate with healthcare providers and how data is leveraged and shared. It is likely to become an even more prevalent component of the patient experience.
Decline in new life sciences investments likely a blip, not a feature
In 2022, public stock prices across all sectors have declined substantially, particularly in the high-flying technology and life sciences sectors, and IPO activity has come to a near halt. However, activity in investments in private companies continues, with companies often opting for extensions of existing rounds at flat valuations rather than new rounds at higher valuations. Venture capital funds in the life sciences continue to have significant capital but are cautious to deploy the funds to new investments out of concern that their existing portfolio companies may need private investment rather than accessing the public markets for a longer period of time than originally expected.
New life sciences funds are being raised with an eye toward investing in undervalued companies opportunistically. However, the more generalist funds, which came to the party when valuations were the highest, are now shying away from the industry. With media talk of rising interest rates and markets gone awry, investors often forget that these may be optimal times to make investments. However, in an industry that requires significant funding before sales can be made, the question is whether there will be enough contrarians to provide funding for the undervalued gems.
We believe interest in the sector should remain strong. The pandemic has made consumers and investors more sensitive to the need for innovation in the life sciences ecosystem. Longer-term indicators are also trending in the right direction: the aging of baby boomers, increased attention of U.S. investors in Canadian life sciences, and the expansion of government grants, loans and overall focus on the industry. The hyperactivity of the last few years, when preclinical companies routinely went public and valuations soared overnight, is over. Now the winners will be those who truly understand the market and are able to discern the wheat from the chaff.
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