Amid a tightened fundraising environment, life sciences companies should double down on basics like focusing on key projects and getting out data, and look at creative ways to raise capital.
Those were some of the take-home messages from venture capitalists and other investors at a panel discussion at the 2023 Life Science Innovation Northwest conference last week.
“Capital isn’t going to flow like it was anytime soon,” said panelist Monica Beam, senior vice president for science & technology at Alexandria Real Estate Equities.
After reaching record highs during 2020 and 2021, venture capital funding for life sciences funding is now closer to pre-pandemic levels, and the IPO market has chilled.
At the same time, the long-anticipated upswing in merger and acquisition deals is starting to happen, led by the $43 billion planned purchase of Seattle-area biopharma company Seagen by Pfizer. The XBI biotech index is up slightly since the Seagen acquisition announcement, but still about 50% down from an all-time high in February 2021.
Biotech leaders seeking cash are asking whether they should do a bridge round of financing from insiders or raise a larger down round at a low valuation, said panelists. Frazier Life Sciences vice president Anna Chen advised going for the larger round. “You’re just in for more pain later on if you delay it now and keep kind of bridging,” said Chen.
“Companies don’t die from dilution, they die because they run out of cash,” added Steve Gillis, managing director at Arch Venture Partners.
Companies should also consider options like partnerships and early mergers or acquisitions, said Beam.
CEOs need to be more disciplined about deciding which programs to pursue, generating data, and showing how their potential product or therapy solves a problem, said panelists. “It’s now back to the basics,” said Judith Li, a partner at Lilly Asia Ventures.
The conservative advice from the panel reflected the mood of biotech leaders at the conference. “It’s a nuclear winter for investment,” said Umoja CEO Biopharma CEO Andy Scharenberg, referring to cell therapy companies in some areas of oncology, during a separate meeting session.
While some fields are hit harder than others, investors are still rewarding good data with cash, said Agustin Mohedas, a portfolio manager Janus Henderson Investors. Vaccine company Vaxcyte, for instance, recently raised $575 million in a post-IPO equity round after recent clinical trial results, he said.
“There is capital out there. You can access it, but you have to be creative and you have to wait for positive data,” said Mohedas.
Read on for more advice and insight from the panel discussion, “Finance: Defining the new normal.” The following comments are edited for clarity and brevity.
Tight markets make for efficient companies
“Starting a company in a market like this in many ways actually sets you up more for success. Because it’s so much harder to access the capital, once you get it, the plan and the science have to be much more clear. You’re doing it at valuations that are more sensible, instead of being overly reliant on an over-exuberant market. My advice would be to really understand the problem you’re solving and what the real need for it is.” — Monica Beam, senior vice president for science & technology at Alexandria Real Estate Equities
Show how and when you will get the data
“There’s a discipline that I see in the public investors that I sometimes don’t see in private investors, and it’s really relevant for a time like this. It’s the discipline to see each data card flipped over. Our favorite thing to see is this runway where at exactly each point in time you are showing ‘x’ and ‘y’ data. Then we know that a company is not going to magically run out of money and have to raise in a horrible environment.” — Judith Li, partner at Lilly Asia Ventures
Consider splitting up company assets
“We are telling our companies that if you have several assets in the pipeline you should really start thinking about whether you should split those up into smaller companies, and whether you are doing those licensing deals. Investors are now able to be more picky, and not every investor wants to invest in every single asset in a company.” — Anna Chen, vice president at Frazier Life Sciences
Look for consolidation and merger options and raise money early
“With all those IPOs in 2020 and 2021, companies that used to have clinical trials failing at the hands of the Arches [Arch Venture Partners] of the world now have programs failing on the public side. And those setbacks create opportunities for those companies to reprioritize and maybe seek reverse merger opportunities for the kind of consolidation that the industry needs. I think there is a lot of that left to do.
Start raising funds early. It’s going to take a lot longer than you think and a lot longer than it has in the past. Also, raise more than you think you need. Assume things will get worse rather than better.” — Agustin Mohedas, portfolio manager at Janus Henderson Investors
Focus on clinical trial recruitment to save cash
“If you’re a clinical stage company, and you’re spending $10 to $30 million in clinical trials, the best thing you can do to extend runway is to recruit patients to the clinical study and actually beat your accrual times — that can add months of life to the company. All of our companies deal with contract research organizations, but don’t trust them to accrue patients. You have to go out yourself, go to the sites and meet with the investigators, stay on top of it. Be a pain in the neck, but get the patients in the door.” — Steve Gillis, managing director at Arch Venture Partners
