Sunny or Stormy? 6 Biotech CEOs assess the investment climate
The biopharma funding and investment climate definitely seems to have picked up for over the past year. Still, many biotech CEO’s fret about the dearth of opportunities – particularly for early stage biotech. We’ve been talking to biotechs to understand their view on the current investment and funding climate – how confident they are for the future, as well as their tips for navigating the markets and pitching to investors in this climate.
Tim Mitchell, CEO, Sareum: I don’t think it’s in a great place at the moment. The VC model is in a state of flux – they’ve finally realised the 10 year investment model is too short and they are busy reinventing themselves. The public markets are improving, but it’s still very tough for early stage companies unless they have a revenue stream.
Davidson Ateh, CEO, BioMoti: We are more optimistic than we were before. We were founded in 2009, and those were really bleak times, but we were lucky enough to have been incubated within the University and get to a good proof-of-concept standard. We are seeing increasing interest from the private sector in the biotech industry. Innovative public-private schemes like the TSB Biomedical Catalyst make it possible to get some funding and use that as a carrot to attract matched VC or private investment. However, the Biomedical Catalyst competition has more recently become very fierce since significantly well funded companies or those spun out from large Pharma are increasingly also applying for this public support. We think, there may be a case for the TSB to consider revising the scheme’s eligibility criteria, so that it can continue to serve much earlier stage companies with compelling ideas, but that may still lack the extensive data packages some of these excellent and more developed companies have. So in the last 4-5 years the climate has been horrible, however the feeling is improving all the time particularly now I guess because of the run of the IPOs in the US and, with a few happening in the UK I’m slightly more optimistic. Still, it is not easy and is an incredibly difficult environment to raise cash!
Eddie Blair, CEO, Genefirst: Compared to the US, we are a little bit depressed, but there is clearly now an appetite to invest in the right thing. The big money is there, the angels are always there to nickel and dime, but there is still that gap, that valley of death between 2 and 10 million. Longer term, if you can get through that valley of death the chances of getting a public listing and getting decent investment is looking quite promising.
Malcolm Young, CEO, e-therapeutics: I’ve heard a lot of gloom but I don’t share that gloom. I suppose that reflects the fact that I’ve raised £60m in the last couple of years. What I think is this: If you put yourselves in the minds of investors, what they like about biotech is the colossal upside potential. What they don’t like is the propensity of these things to bomb and to lose their shirt.
Just before the first major funding round that we had 2 or 3 years ago, rather a lot of British biotech had in fact blown up, no residual value effectively. Renova, Minster, Neuropharm, it was like the first day of the Somme. When we were going into that round where we needed to raise a relatively small amount of money for clinical trial work, I expected that I would have to put a telephone directory down the back of my trousers. In fact what happened was that they responded to our pitch by liking the context we gave of the upside potential.
Almost without our noticing it, our proposition had covered off the upside of the opportunity, every business being free and possibly bigger because we’ve got a platform that can produce new, good stuff and we’re not just developing things that other people have discovered. So we demonstrated plenty of upside potential
I think the proposition for biotechs to investors is best when it’s mindful of their need for upside potential and also downside risk. In our case we do that by having products that look pretty exciting and also a platform that produced those things that can produce more. So rather than leaving the telephone directory down the back of my trousers, we started off looking at £5m or something in a round and eventually it topped over £20m and that’s because investors wanted us to turn back on and really get the discovery platform moving again. I think as long as those basic features that investors care about are paid attention to, it isn’t too difficult to raise money actually.
‘ I think the proposition for biotechs to investors is best when it’s mindful of their need for upside potential and also downside risk’
Eddie Littler, CEO, Domainex: It seems to have picked up. I know everyone says this, but because we have the service business plus the investment, we sort of have lots of antennae out there, and in both parts of business we’re seeing movement. We’re seeing a lot more biotech coming to us on the service side and wanting us to do things for them and certainly when I went out to get investment about a year ago now, it was quite a hard time to raise investment at that point in time. I’m not saying that it’s getting really easy, but I have seen directly a number of people that we were talking to are now much more positive about investing and actually coming back to us and asking us ‘are things progressing, can we have another discussion?’ So, I am saying that the market is picking up. Its not exploding, but it’s coming up in a sensible way, although I think we’re still seeing decision making taking longer than it used to. That still seems to be something that’s left over from the recession in 2008.
Biotech and Money: Okay, so would you say you’re fairly optimistic about the prospects for a biotech seeking capital and funding?
Eddie Littler: More than I was. I think there is still a challenge for British biotech companies. You see a much more dynamic positive atmosphere over in the States compared to the UK. I think UK biotech are still quite challenged to raise money and I think the other aspect of it is of course is that money tends to come in in tranches; the sort of attitude from British investors is to keep companies somewhat short of cash to drive forward the milestones. In the States, you get a very different attitude, which is to fund the companies properly for them to achieve the milestones. They quite rightly identify one of the key parameters as time to the market place, so by funding a company properly you’ll get the time to the market place or the milestone, whether or not it’s an IPO or a trade sale, is shortened and they’re much more focused on achieving that. In the UK that dynamic doesn’t seem to be quite as important to investors and they seem to want to be more in control of the cash flow of companies, they have different philosophies on investing.
Biotech and Money: Why do you think that is? Do you have an opinion on why there’s a more cautious approach in Britain than in the US?
Eddie Littler, CEO, Domainex: I think we have to recognise that there is a difference in the cultures in the UK and the USA. I think also because US investors had some very positive experiences in the biotech sector, some fantastic companies have come through like Gilead, who’ve made investors a lot of money.
In the UK that hasn’t been so apparent. A number of biotechs have got to that stage where they seem to be crossing that threshold and then they’ve been acquired, so they’ve never really seen the chain going forward to the point where they see those big returns on investment.
Biotech and Money: Do you think there are sufficient funding opportunities out there at the moment? What’s your take on the current funding and investment opportunities?
David Williams, CEO, Discuva: It’s the best environment we’ve ever had for making companies in the UK, especially in the biotech sector. 10 years ago if you’d asked me I’d say go and see a VC, but now I wouldn’t. There’s not really places for investors to put their money now is there really? Banks are quite unstable, gilts are not as good as they ever were. Which makes it a brilliant environment for wheedling money out of investors because they want to have opportunities to increase the value of the capital. So, if there’s a good opportunity, then why wouldn’t you invest? I’d certainly invest if I saw a good company, because I’m going to get a better return.