The pace of biotech investment has slowed recently, harming development at the small, new companies that are driving innovation.
“Coming down from the heyday of the pandemic days, where we saw an all-time high of preclinical companies going public and significant capital raises, it’s gone down dramatically,” says Grace Colón, Ph.D., a member of the Board of Directors of the Biotechnology Innovation Organization (BIO). “We are now seeing a very challenging investment environment, particularly for companies that are late-stage private.”
Thriving in this environment requires new business strategies, and Colón and her colleagues will be sharing creative approaches in a BIO webinar called “Weathering The Storm: How to Navigate a Slowing Investor Market,” set for 2 p.m. ET on Thursday, April 27.
“Access to capital and the capital markets in general for the biotech and life sciences industries have been pretty challenging over the past few years, but we’ve been here before,” notes Brad Zakes, President and CEO of Cerevast Medical and a BIO board member who will moderate the panel.
“Anyone who’s been in this business over the last 20-30 years has witnessed firsthand the ebb and flow of challenging financing environments,” he says.
The webinar panel brings extensive experience in the business: Colón has been a CEO, board member, and investor; Kaye Foster, a senior advisor, executive coach, and partner at Arch Venture Partners; and Mike Huckman, Global Practice Leader of Executive Communications for Real Chemistry and also a BIO board member, promises to offer lessons on messaging.
“I’ll be sharing our counsel on how to best position investor communications in the current capital markets environment, covering everything from messaging, slide deck look and feel, and importantly, how to ensure all of the storytelling is aligned and consistent,” says Huckman.
Rough on late-stage development
“I think that this webinar comes at a really important time for the biotech industry. We’ve collectively seen a lot of challenges whether it be for fundraising or the overall financial environment,” Colón says.
A few years ago, only about 15-20% of the IPOs were for preclincal stage companies, but during the heydey of the pandemic, about half of the companies that went public were at that stage, according to Colón. After this flurry of investment, there is less appetite to invest in private companies with untested assets, she says.
“A lot of the investors that were focusing on private investment have turned their attention to all the public companies that are trading well below cash. And at last count, at the end of 2022, there were nearly 200 of these companies,” Colón explains. “These companies have a long time to wait for follow-on milestones and therefore their stock prices are lagging,” which is drawing speculative investment and leaving private companies ignored.
Without this support, early startups are struggling, says moderator Zakes.
“Privately held companies are relying on government grants or initial seed financing early on, but once you start getting in clinical studies, you need investment,” he explains.
Creative financing and cutting costs
Zakes says his company was able to deal with the challenge of fundraising through a Special Purpose Acquisition Company (SPAC) and adds that there are a host of other solutions.
As CEO at InCarda, Colón steered the company from pre-seed stage to a Phase 3 clinical trial and raised over $120 million for the effort, and InCarda made sure those funds were sufficient. “We were able to get to Phase 3 at InCarda with only $120 million, We were very capital efficient from the start,” says Colón, who advises that other startups can save capital if they’re careful.
“For example, you don’t always need to begin with a slate of full-time hires,” she explains. “Many experienced biotech individuals are ready to work on a consultancy basis for equity, for very little money. We also set up a subsidiary in Australia, which has great R&D infrastructure, particularly for early-stage clinical work, and which has attractive R&D credits and other advantages.”
Executive coach Foster agrees with Colón’s advice that firms need to contain personnel costs. Foster suggests some strategies, including:
- Focus on the critical few roles needed for early stage progress, outsource or defer everything else.
- Be brutally disciplined regarding general and administrative spending—this is an area that grows quickly.
- Adopt a cost-efficient mindset and culture from day one.
Revaluing companies, valuing free advice
Private companies and their investors also need to set realistic expectations with respect to valuations, which have drastically decreased compared to 2-3 years ago, Colón says. In order to attract the funding necessary for the company to progress, many companies are experiencing significant down rounds or undergoing recapitalizations.
Another simple piece of advice, according to Colón, is to “build your investor network as early as possible.” She continues, “It’s surprising how many investors are willing to have a conversation and provide advice on what the milestones are that they would be looking for to trigger an investment interest. Venture capitalists and other investors will give up their time generously to provide invaluable advice. So use it,” Colón suggests.
Colón and her fellow panelists will be offering some invaluable advice during Thursday’s webinar. Register here.