2021 BDO LIFE SCIENCES CFO OUTLOOK SURVEY

2021 BDO LIFE SCIENCES CFO OUTLOOK SURVEY

THE ROAD TO RECOVERY 3

PANDEMIC PIVOTS 4

OPPORTUNITIES ABOUND 8

SUPPLYING THE FUTURE 13

RESPONDENT PROFILE 18

Table of Contents

LIFE SCIENCES CFO OPTIMISM

Life sciences CFOs are the most optimistic headed into 2021. Explore our 2021 BDO Middle Market CFO Outlook Survey to see how other industries are faring.

forecast a revenue increase

forecast a profitability increase

expect an economic recovery in 2021

NOW ONE YEAR FROM NOW

CFOs Identify as61% 80%29%10% 17% 3%

Thriving ThrivingSurvivingStruggling Surviving Struggling

It’s been a demanding year for life sciences.

The pandemic caused sweeping disruption across every industry, leading many businesses to take a defensive position. Life sciences companies, on the other hand, took the field on offense.

Whether rapidly pivoting the pipeline to aid in the crucial development of tests, treatments and vaccines for COVID-19, increasing the production of ventilators and personal protective equipment (PPE), or ensuring that pandemic-related restrictions do not hinder access to important drugs and medical devices, life sciences organizations have been called to act, at speed, during this critical time.

As the coronavirus-induced recession is expected to continue well into 2021, one thing is clear: Nothing returns to normal without life sciences.

Tasked with charting a sustainable road to recovery for both the industry and the global economy at large, life sciences organizations must advance COVID-19 R&D to the point of commercialization and widespread adoption of a novel vaccine. However, according to the 2021 BDO Life Sciences CFO Outlook Survey, to truly thrive beyond the pandemic, companies must also persist in demonstrating value, capitalizing on new opportunities, and effectively preparing their organizations to succeed in an environment rife with emerging risk and accelerated disruption.

The Road to Recovery As COVID-19 continues to disrupt the entire life sciences ecosystem, the pressure to innovate is higher than ever before. To compete, life sciences leaders must reimagine and reinvent the ways in which they work. Those who further collaboration, build greater resilience into their supply chains and invest in outcomes-based R&D will be best set up to thrive in what’s next.

TODD BERRY Assurance Partner and National Co‑Leader of BDO’s Life Sciences practice

69% 81% 61%

2021 BDO LIFE SCIENCES CFO OUTLOOK SURVEY / 3

https://www.bdo.com/insights/industries/industries/2021-middle-market-cfo-outlook-survey

Pandemic Pivots

DOUBLING DOWN ON R&D

COVID-19 largely altered life sciences leaders’ R&D priorities.

As states and organizations implemented severe restrictions on many operations, access to clinical trial sites and patients were hindered, and lab capacities were reduced to essential employees only. The industry faced immediate pressure to pivot resources to develop and produce therapeutics and vaccines for COVID-19. In this environment, life sciences leaders had to be decisive about which research projects made the most sense to advance.

While investments in non-COVID-19 areas of R&D slowed over the past year, life sciences organizations have shown immense agility in reallocating resources effectively, efficiently and at scale to meet greater pandemic-driven need.

Cell therapy

Gene therapy

Immunotherapies

Diagnostics

Consumables

Wearables

COVID-19 vaccine

COVID-19 therapeutics

32% 16% 57%

36% 17% 47%

40% 24% 56%

49% 39% 51%

40% 36% 53%

32% 29% 57%

36% 45%

31% 43%

WHERE ARE CFOS INVESTING?

In 2019 Currently In 2021

30% have rerouted resources to COVID-related research

4 / 2021 BDO LIFE SCIENCES CFO OUTLOOK SURVEY

Headed into 2021, life sciences CFOs are once again doubling down on R&D, with 69% planning to increase investment and 68% citing three to four promising products in their current portfolio for commercialization. While the prioritization of COVID-19 R&D is expected to continue until effective treatments and/or vaccines are commercialized, a significant bounce back of R&D investments in areas outside of COVID-19 vaccine and therapeutics research is expected in the new year. From immunotherapies to diagnostics to wearables, the influx of pandemic-related cash, energy and resources is likely to spill over into R&D areas like antivirals and remote monitoring.

FEDERAL R&D TAX CREDIT ELIGIBILITY

The cost of R&D in life sciences continues to increase—as does the risk—given public pressure to rein in drug prices and demonstrate value. As expenses rise, life sciences organizations can claim R&D tax credits to reduce their tax liability and allow for further investment in innovation.

Each year, however, billions of dollars go unclaimed at the federal and state levels because companies either aren’t aware of or don’t fully understand eligibility for R&D tax credits.

At the federal level, life sciences organizations working to develop new or improved products, processes, software or formulas are eligible for R&D tax credits—especially if the research is related to treating COVID‑19.

Under current IRS guidance, life sciences companies who received COVID‑19 relief funding can claim R&D tax credits but only for qualified research expenditures that:

1. Were not paid for with proceeds from a PPP loan; or

2. Were paid for with proceeds from a PPP loan but only if:

u The PPP loan ultimately wasn’t forgiven;

u The taxpayer doesn’t request forgiveness for the PPP loan; or

u The taxpayer doesn’t reasonably expect that the PPP loan will be forgiven.

If a life sciences company reasonably expects the PPP loans will be forgiven, it should consider recent IRS guidance and speak to a tax professional in regards to its R&D tax credit eligibility.

Try our R&D Tax Credit Calculator to see if your organization is missing out or undercapitalizing on valuable credits.


https://www.bdo.com/r-d-tax-credit-calculator

ENABLING TRANSFORMATION AND EXPANSION

To thrive in 2021 and beyond, life sciences CFOs are placing greater emphasis on driving digital transformation initiatives and downturn-proofing their organizations.

TOP BUSINESS STRATEGY FOR 2021

TOP 3 BUSINESS PRIORITIES IN 2021

Only

17% of CFOs predict a fast economic recovery in 2021

A prolonged economic downturn is life sciences’ top threat in 2021

Investing in Technology or Infrastructure

M&A Integration Managing Through Economic Downturn

33% 15% 15%

63%Digital

Transformation

Expansion is also high on the list for life sciences CFOs, with 41% citing plans to pursue product or service expansion in 2021. However, as life sciences organizations look to expand their offerings, they must do so with a focus on building a digitally-enabled workforce and infrastructure to support their growth.

ECONOMIC OUTLOOK


On a practical level, as life sciences leaders lay the groundwork for expansion, they need to consider how they can best evolve their operations and workforce strategies to fit current and future needs. For example:

u How can they maintain continuity of operations given sustained disruption to their workforces, R&D, supply chains and manufacturing capacities due to COVID-19?

u Can they shift to conducting clinical trials remotely?

u Can manufacturing workflows and development schedules be redesigned to keep essential employees safe and remote employees connected?

u Can they leverage digital platforms to engage with healthcare professionals?

u Are there safeguards in place that will allow them to protect intellectual property and proprietary information while operating in a remote setting?

Life sciences CFOs must answer these questions and think through how to engage their workforces when executing on these shifts.

Life sciences organizations will also need to rethink how they manage and incentivize talent in a remote, or partially remote, setting—especially given 10% of CFOs say recruiting and retaining top talent is their #1 priority in 2021. As the life sciences industry continues to grow at a rapid pace and the pool for skilled employees shrinks, ensuring workforce retention, specifically the retention of high performers, will be critical.

DRIVING SUCCESSFUL DIGITAL TRANSFORMATION

To achieve desired ROI, life sciences organizations looking to embark on digital transformation initiatives must do so with a full understanding of:

Life sciences organizations who know how to best leverage digital enablers—like cloud computing, advanced analytics and blockchain—and embrace digital transformation from a holistic perspective will be able to move beyond digital transformation as a disruptor and towards digital transformation as an enabler of better business outcomes.

How to properly execute their digital

transformation strategy

How digital transformation can best optimize their people, processes, platforms and protections


https://www.bdo.com/digital/services/strategy/digital-transformation/3-1-approach

https://www.bdo.com/digital/services/strategy/digital-transformation/3-1-approach

Opportunities Abound

As pandemic pivots continue to spark meaningful change, life sciences CFOs are seeking collaboration and capital.

While the pandemic’s toll on health and the economy has been massive, disruption can drive positive change. In the last six months, life sciences CFOs say they have experienced:

38% 32% 31%

42% 41% 40%

Improved workforce culture and unity

New investment or expansion opportunities

Enhanced community / government partnerships

New opportunities for product or service innovation

Faster decision-making Accelerated digital transformation


STRATEGIC PARTNERSHIPS & COLLABORATION

In the life sciences space, R&D is always high-cost, high-risk and—if successful—high-reward.

To lighten the load and hasten outcomes, life sciences leaders are increasingly seeking opportunities to partner and collaborate with other organizations in the development and commercialization of new drugs, medical devices and technologies.

PLANNED PARTNERSHIPS

Data and/or technology Research Commercialization Clinical studies

44% 41% 36% 30%

Licensing agreement Academic institution Artificial intelligence Joint venture

23% 23% 22% 20%

M&A Government contract or partnership

Private equity18% 17% 14%


The industry’s efforts in the battle against COVID-19 have fast-tracked opportunities for collaboration, innovation and expansion. As we look to the future, a focus on efficient, sustainable and value-based transformation—and financing—will be key. As organizations seek the scale, scope and speed to level up in today’s environment, they must do so with a focus on driving digital agility, improving patient outcomes and fostering transparency to prove efficacy to investors and the public.

LANCE MINOR Principal and National Co‑Leader of BDO’s Life Sciences practice

Collaborative partnerships are quickly becoming table stakes for accelerated innovation, and life sciences organizations will need to be strategic about attracting and engaging with the right partner for the right goal. Whether looking for traditional partnerships or cross-industry partnerships with sectors like healthcare or technology, life sciences leaders should evaluate and consider a variety of deal structures, as well as tax considerations, with a clear focus on which partnership opportunities will have the greatest impact on the company’s ability to scale, fund future innovation and further diversify their product and service mix.

Once the right partnership is secured, proper alignment on strategy, objectives and execution will be key to success—especially when partnering with new entrants who may not have a clear understanding of how the industry operates in a highly regulated environment.

AMGEN AND ADAPTIVE BIOTECHNOLOGIES

On April 2, Amgen and Adaptive Biotechnologies announced a collaboration, bringing together Adaptive's proprietary immune medicine platform for the identification of virus‑neutralizing antibodies with Amgen's expertise in immunology and novel antibody therapy development to develop a therapeutic for COVID‑19.

ASTRAZENECA, CEPI AND GAVI

On June 4, AstraZeneca announced a $750 million agreement with the Coalition for Epidemic Preparedness Innovations (CEPI) and Gavi, the Vaccine Alliance, to manufacture, procure and distribute 300 million doses of AstraZeneca‑Oxford’s potential COVID‑19 vaccine, AZD1222, by the end of 2020.

ROCHE AND GILEAD

On May 28, Roche and Gilead announced the initiation of a global Phase III, randomized, double‑blind, multicenter study to evaluate the safety and efficacy of Roche’s Actemra® in combination with Gilead’s investigational antiviral Remdesivir, versus placebo plus Remdesivir, in hospitalized patients with severe COVID‑19 pneumonia.

SPOTLIGHT:COVID-19 COLLABORATION & INNOVATION IN ACTION


https://www.bdo.com/insights/industries/life-sciences/tax-considerations-of-collaboration-arrangements-i

FINANCING FOR GROWTH

Life sciences funding has spiked in 2020 as the industry’s push to produce COVID-19 treatments continues to attract and intensify both investor interest and federal funding. In fact as of September 2020, 59% of life sciences organizations secured funding or assistance from government programs in response to COVID-19. To finance plans for growth, as well as relieve high R&D and clinical trial expenses, life sciences CFOs will look for opportunities to capitalize on this heightened attention in 2021.

Yet, to maintain interest from both investors and the public, life sciences organizations will need to prove their value.

2021 FINANCIAL PLANS FOR GROWTH

25% plan to pursue PE investment

SPACS AS AN EXPRESS TRACK TO IPO

Although the COVID‑19 pandemic has caused significant economic hardship for most, Special Purpose Acquisition Companies, or SPACs, have gained traction in the life sciences space as an opportunity for organizations to quickly access capital and increase public visibility.

For investors, SPAC IPOs are low‑risk as they can recoup finances, and the potential for returns are higher than ever given the access to capital, low interest rates and the ability to move quickly to close an acquisition. For target life sciences companies, SPAC IPOs provide the potential to access additional capital and grow exponentially despite the economic downturn.

25% plan to pursue M&A

24%of private companies plan to pursue an IPO, of which 25% are biotechs


https://www.bdo.com/resources/bdo-knows-spacs

To demonstrate their effectiveness at reducing costs and improving outcomes, the majority of life sciences organizations (78%) are partaking in some form of outcomes-based contracting. However, while outcomes-based contracts with providers seem to be increasing in popularity—specifically with biopharmaceuticals, pharmaceuticals and biotechs—outcomes-based contracts with payers are down slightly from last year.

OUTCOMES-BASED CONTRACTS IN LIFE SCIENCES

33% 30% 53% 57% 14% 22%

Have an outcomes-based contract with a payer

Have an outcomes-based contract with a provider

Do not have outcomes-based contracts

2019 2020 2019 2020 2019 2020

A Closer Look at Outcomes-Based Contracts with Healthcare Providers

52%

68%

44%

70%64% 68%

Biopharmaceutical Pharmaceutical Biotech2019 2020 2019 2020 2019 2020

Outcomes-based contracts with providers are increasing in the life sciences space as pressure mounts to demonstrate value to investors, patients and the general public. As life sciences organizations partner with providers to prove out value in the current environment, they must do so with a heightened focus on constructing the right value-based payment model to support lower costs, improve patient outcomes and mitigate disruption. Life sciences leaders who work to identify changes in their operational landscape and restructure their provider contracts accordingly will be better prepared to operate in the reimbursement landscape post-pandemic.

JIM WATSON Principal in The BDO Center for Healthcare Excellence & Innovation


Supplying the Future

25% Medical equipment and

medical supplies manufacturing

16% Biopharmaceuticals

18% Pharmaceuticals

19% Physical, engineering

and life sciences (except biotech)

22% Biotech

WHICH LIFE SCIENCES SUBSECTORS ARE STRUGGLING MOST WITH PRODUCTION CAPACITY?

In the last year, the life sciences industry has hustled to address pandemic pain points as efficiently as possible. Today, supply chains have been rerouted, resources have been reallocated and manufacturing has been ramped up to better meet global need and aim to mitigate against further disruption.

As COVID-19 continues to impact the supply and manufacturing of essential products, life sciences CFOs are using lessons learned in the early days of the pandemic to optimize and build more agility into the supply chain of the future—which will be crucial to the successful deployment of eventual vaccines and therapeutics.

CAPACITY CONCERNS

To successfully bring products to market, life sciences organizations must have access to sufficient manufacturing capacity.

However, as directives to produce COVID-19 products at scale compete with the existing manufacturing need for non-COVID products, life sciences manufacturers are grappling with how to free up capacity to meet demand.

As manufacturing plans are disrupted, life sciences CFOs must understand what non-COVID products are also vying for demand and ensure that essential medicines, devices and technologies have sufficient capacity.

While connecting with vendors, suppliers and distributors to gauge manufacturing capacity is a good first step, life sciences organizations should seek to develop a clear line of sight into the current product market and capacity landscape as a whole. For example, BDO’s bioTRAK® database provides life sciences leaders with detailed information and analysis on biomanufacturing capacity supply and demand. Organizations that leverage data to inform their understanding of the types of capacity available throughout the biomanufacturing space will be better able to forecast what products are competing for capacity and adjust their manufacturing strategy as needed.


SUPPLY CHAIN SHIFTS

More than one in 10 life sciences CFOs say supply chain disruption is the greatest threat to their business in 2021, and for good reason. Global supply chains, international economic shutdowns and the reallocation of resources towards COVID-19-related products and projects have led to supply shortages and struggles across the industry.

As the pandemic continues to highlight vulnerabilities on an international scale, many organizations are looking to reduce their risk by identifying alternative suppliers, contemplating a reallocation or reshoring of resources and building more resiliency and agility into their supply chain in 2021.

26% of CFOs say trade & tariffs is their biggest policy concern in 2021

Looking ahead, as life science leaders use lessons learned from the pandemic to reassess their supply chain plans—especially from a business continuity and resiliency perspective—they must also carefully consider trade and tariff implications.

WHICH OF THE FOLLOWING SUPPLY CHAIN ACTIONS ARE LIFE SCIENCES CFOS UNDERTAKING?

Identifying alternative /

backup suppliers

Conducting a supply chain risk

assessment

Investing in supply chain technology

Bolstering or adding redundant

inventory of select drugs or devices

Relocating to another country

(non-U.S.)

Reshoring to the U.S.

61%57% 54%

50%

29% 28%

Trade and tariffs are important tools in managing geopolitical relations, which can directly impact supply chain stability and access to critical resources and raw materials for life sciences companies—including active pharmaceutical ingredients (APIs). As international supply chains may be further disrupted by ongoing or emerging trade and tariff moves at the federal level, life sciences organizations should consider geographical diversification of their supply chains to minimize regional and country-specific impacts to their sourcing and production processes. These considerations also impact global transfer pricing and customs valuation ramifications—which are top enforcement priorities for governments worldwide. In short, considering the “Global Value Chain” should be a top priority in the coming year for all life sciences companies.

DAMON V. PIKE Principal and Customs & International Trade Leader at BDO


COVID-19 VACCINE CHALLENGES

Once a vaccine has been developed and approved for distribution, the road to economic recovery will still be long. If getting a vaccine to commercialization is like scaling a mountain, supplying the treatment to large, diverse populations will be akin to summiting Mount Everest.

While the efficacy of a vaccine is essential, once proven effective, life sciences CFOs know that consumer confidence will be crucial to widespread adoption. Life sciences organizations currently working on COVID-19 vaccines

should strive to get ahead of consumer apprehension about taking a newly approved vaccine by being ultra-transparent and communicative about their research. Vaccines that can build consumer confidence early through clear, science-backed communication will have a better chance of garnering acceptance from the general public. In addition, continued optimization of supply chain manufacturing process engineering will be necessary in order to overcome any manufacturing and sourcing constraints.

WHAT DO LIFE SCIENCES CFOS EXPECT TO BE THE BIGGEST CHALLENGE FOR AN APPROVED COVID-19 VACCINE?

32% Efficacy

24% Consumer adoption

18% Sourcing and manufacturing enough quantity

18% Efficient deployment

8% Reimbursement


Pioneers on the road to global recovery, life sciences CFOs are optimistic about the year ahead. But, as increased investment, accelerated transformation and collaborative innovation continue, life sciences organizations must adapt with intention and prepare to thrive beyond the pandemic.

As we enter a new year, life sciences organizations must continue to advance COVID-19 vaccines and therapeutics, as well as other areas of R&D, build greater resilience into their supply chains and remain agile in an increasingly digital world. Organizations that can do this and lead with value and transparency will build a strong foundation for future growth.

Our research goes beyond life sciences.

View the survey results from 600 CFOs across industries in our 2021 BDO Middle Market CFO Outlook Survey.






Respondent Profile

ANNUAL REVENUE

7%

26%

22%

35%

10%$250M-$500M

$501M-$750M

$751M-$999M

$1B-$2B

$2B-$3B

The 2021 BDO Life Sciences CFO Outlook Survey polled 100 CFOs at biopharmaceutical, pharmaceutical, biotech, medical equipment and supplies manufacturing, and physical, engineering and life sciences subsectors with revenues ranging from $250 million to $3 billion in September 2020. The survey was conducted by Rabin Research Company, an independent marketing research firm, using Op4G’s panel of executives.

Average tenure in current CFO role: 5 years

COMPANY TYPE

50% Public

50% Private

BIOPHARMACEUTICALS

PHARMACEUTICAL

BIOTECH

MEDICAL EQUIPMENT AND SUPPLIES MANUFACTURING

PHYSICAL, ENGINEERING AND LIFE SCIENCES (EXCEPT BIOTECH)

TYPE OF LIFE SCIENCES ORGANIZATION

23%

22%

22%

21%

12%

How the life sciences CFO respondents self-identified their organization:


ABOUT BDO’S LIFE SCIENCES PRACTICE

BDO’s Life Sciences Practice provides the guidance that pharmaceutical, biotech, and medical device manufacturers need, when they need it. From understanding the complexities of research and development tax credits and FDA regulations, to licensing agreements and due diligence, we help our clients grow.

ABOUT BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 65 offices and over 740 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of more than 88,000 people working out of more than 1,600 offices across 167 countries and territories.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your needs.


© 2021 BDO USA, LLP. All rights reserved.

People who know Life Sciences, know BDO.

Contact UsFor more information on BDO USA’s service offerings in this industry vertical, please contact one of the regional service leaders below:

TODD BERRYNational Life Sciences Co‑Leader617‑239‑4125 / [email protected]

LANCE MINORNational Life Sciences Co‑Leader301‑354‑0711 / [email protected]

ELENI LAGOSLife Sciences National Tax Leader212‑817‑1739 / [email protected]

Documents

2021 BDO LIFE SCIENCES CFO OUTLOOK SURVEY