Biotechnology Funding Oasis: How Biotech Companies at All Stages Can Succeed in Lean Times | Foley & Lardner LLP
Recent report from FinancialTimes shows that valuations and funding of biotech companies have fallen dramatically, as “only nine biotech companies have listed in the United States this year, raising a total of $1 billion…nearly 60 companies have made during the same period last year, attracting investors for $7.4 billion.” This represents a 70% decline in the total enterprise value of publicly traded global biotechnology companies from February 2021 to May 2022. While this trend is consistent with a broader downturn in the general IPO market, funding by venture capital for biotechnology has also slowed – although some of this may be due to an abnormally bullish period in 2021.
These trends underscore the need for biotech companies at various stages of growth and product development to seek out and deploy capital more effectively. Here are some ways companies can address the problem of investors who are more hesitant in the biotech market due to factors such as falling value or companies that have failed to develop drugs, especially for unmet needs:
- Broaden the scope of venture capital firms to work with. While ensuring companies have the domain expertise and track to be both long-term strategic and financial partners is critical, as noted in this article, “new offerings can pick up if companies broaden their selection of investors to pitch their business to. Instead of having two venture capitalists [firms]Powell advised private companies to have “three or four … around the table, [to] choose venture capital with deep pockets…with knowledge or experience of the sector in which this company operates… [and with a] great ability to fund the business over the longer term even if no new investors come along in a year, we know we have four great investors around the table.
- Search for partnerships and/or acquisitions by large pharmaceutical companies. Recent examples such as the acquisition of Turning Point Therapeutics by Bristol Meyers Squibb for $4.1 billion and the acquisition of Sierra Oncology by GlaxoSmithKline for $1.9 billion show that the key to this strategy is to identify a link between the company’s product roadmap and the unmet needs of potential partners in their portfolios. By focusing resources on achieving a stage of development directed at this link, companies can prepare for successful partnerships and/or exits.
- Strategic use of debt financing to achieve specific milestones. As BridgeBio Pharma secured up to $750 million in non-dilutive debt financing shows, debt financing can be particularly beneficial when scaled to match specific development stages. This ensures that future funding can also be tailored to the growth of the business without signaling excessive risk to future investors. In other words, the benefits of demonstrating significant accomplishments can outweigh the apparent risk of debt financing.
A common theme is to focus corporate resources on demonstrating clear achievement of clinical milestones. This can help significantly reduce risk to company prospects based on tangible results that reinforce the promise of the company’s drug pipeline. Additionally, while it’s difficult to predict exactly when the current cycle will rebound to more typical funding levels, setting goals aligned with such a timeline can help demonstrate how the company plans to arrive at an IPO. on the stock market or another strategic exit. In other words, by communicating a clear business plan that is realistic about timelines, supported by existing clinical accomplishments, and focused on how new investments will be used to reach the next stage, companies can increase the confidence of investors and, in turn, achieve better results for financing. .