Life Sciences Fundraising in the Wake of COVID-19

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Jim Rudmanlife sciences fundingBy Jim Rudman, CEO, Ashton Tweed and Robert Dickey IV, Managing Director, Foresite Advisors, LLC

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The coronavirus pandemic is just one of many challenges that the economy can face, impacting businesses worldwide. However, the life sciences industry differs from others in many ways, and not just because they are playing a major role in fighting the virus. “The biotech market is unique for a few factors, one of them being the long-term nature of investors who support these fields,” Jordan Saxe, head of healthcare listings at Nasdaq, told FierceBiotech. “They’re not focused on a quarter-to-quarter metric; they’re looking at an average milestone readout that is at least 12 months from the IPO.”

It also doesn’t hurt that pharma’s reputation has received a much-needed boost during these difficult times. “Consumers’ impression of pharma companies has soared during the COVID-19 pandemic, with 40% now reporting that they have a more positive view of the industry than they did before the pandemic began,” (FiercePharma). Although biopharma investment and fundraising has seemed unaffected, it’s still early… “If COVID-19-linked disruption lasts longer than six months, even well-capitalized sectors must prepare for the consequences. The effects of lockdown across most major economies have yet to be fully felt, and it’s unclear what damages lie ahead when restrictions are lifted,” says Nature.

Having spoken with executives from pharma, biotech, and device companies, as well as venture capital and private equity investors, I’ve found that the themes are very much the same:

Short-term: Conserve cash where you can in case these business challenges extend into Q3 and Q4. Circle the wagons around current investments – make sure those companies prevail and look to invest opportunistically.

Long-term: There is investment capital on the sidelines ready to be deployed once things settle down. Do what you can to be ready when the opportunity presents itself!

To gain more insight into this matter, I’ve reached out to good friend and finance veteran, Robert Dickey. Dickey has C-level (CFO, COO, and CEO) and Board level experience in public, private, revenue stage, and development stage life sciences and medical device companies. He’s played a leading role in two start-ups and spent eighteen years of his career as an investment banker. Needless to say, he’s been very busy despite the COVID-19 quarantine. Here’s what he has to say about funding during these challenging times:

“We are in an unusual time for any type of fundraising with the COVID pandemic and concerns about an upcoming recession. For life science companies, at least, the pandemic has had its good side in that many investors now have a more favorable impression of biotech and pharma companies. However, this can all change very quickly, and as we move towards the presidential election and get a better sense of the full impact of COVID, investors may pull back.

“Public markets have been active with 29 biotech IPOs through June versus 26 for the same period in 2019, with 15 of those in June of 2020. July has also been busy. And there have been many secondaries, totaling 133 through June. A couple points should be made here: First, this activity has occurred over a period when the Nasdaq Biotech Index dropped 10% during the first quarter and then rebounded 34.4% in the 2nd quarter.  Second, the IPO market has been more slanted towards larger offerings, with 8 biotech IPOs in the first half of 2020 over $200 million and a total average raise of $175 million. This can mean that the market and institutional investors are more oriented towards companies with a higher market capitalization and in certain hot indications, so it may not be as positive an environment for smaller cap companies.”

His advice for smaller companies: “Despite this trend, there are underwriters that focus on smaller deals, so there can still be an opportunity for those companies. In addition, there are many reverse merger candidates and, because these public shells often have limited cash resulting in a low market cap, smaller transactions of this type are possible. All of this, of course, can be affected by the traditional summer slowdown and other events.”

“The private market is less embracing. Here there seems to be a pause among VCs and family offices, either to wait until things get to be more normal, if that does happen, or to direct their attention to existing investments. Depending on the deal and the specific disease area, these groups can show an interest and dive in, but for many others they say they do not have the bandwidth or are nonresponsive. Building the book to a closing is now a longer process for these deals which have never been quick or easy.”

His advice for private companies: “What is needed is a larger list of potential investors to contact and sufficient cash runway to last through the fundraising, which may require accessing additional capital from existing shareholders. All in all, transactions can still get done including those involving smaller raises.”

Although the current environment is complicated and unprecedented, the life sciences industry has a lot working in its favor and there are some tried and true methods to make it through to the light at the end of the tunnel. How has your business been adapting and progressing during these trying times? We’d love to hear your financial tactics in the comments below!

 

Looking for financial talent to aid your life science company? Contact Ashton Tweed today.

Need financial advisory services for your life science company? Contact Robert Dickey at Foresite Advisors, LLC.

Share your insights! Contact khoffman@ashtontweed.com to contribute your life sciences article as a guest writer.

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