LSX Congress panel talk biotech investment, public and private markets, and more
In the fast-paced world of biotech and healthcare, effective communication and strategic planning are crucial for a successful initial public offering (IPO). We were delighted to attend a panel, chaired by Danforth Advisors’ Gregg Beloff, at the LSX Congress recently, where the guests discussed the upcoming challenges and opportunities for biotech and healthcare companies seeking to enter the public markets. They shared their insights on IPO readiness, communications planning, and key considerations for tapping into the US public markets.
On the panel were:
Tim Haines, Managing Partner, Abingworth Life Sciences
Linden Thomson, Lead Manager, Healthcare Franchise, AXA Investment Managers
Lone Henriksen, CEO, CS Medica
Houman Ashrafian, Managing Partner, SV Health Investors
The session began in earnest with a discussion about keeping management teams focused, as well as board-level perspectives on financing. Predicting the future is difficult, though pharma companies are largely immune from the volatility of public markets, which has a huge impact on investment prospects. Haines advocated for biotechs to be realistic about their ‘crown jewels’, with the market being in better shape than in, for example, 2000 or 2008, and that funding is there for strong projects. Nonetheless, there is no sense in rushing the approach to the public market; Thomson advises companies to put this off by 12-18 months later than has been seen in the past. Too many companies came to the market too early in 2020-21 and suffered the consequences.
Crafting a Compelling Story
When it comes to IPOs, financials alone won't attract investors – you will need a compelling narrative that goes beyond the balance sheet. Having a clear strategy for communicating with backers is essential – and Henriksen spoke of this from first-hand experience. She had been looking for VC funding with CS Medica when their consultants suggested trying for an IPO instead, which was ‘a lot of work [...] The work coming afterwards is where we learned our lessons.’ Henriksen was resolute on the need for ‘a clear strategy on how to handle the investor; how to communicate; what are the key milestones that your investors should look at after you are on the stock market’.
Private options
Nonetheless, Ashrafian noted that ‘staying private is no shabby option’ given the volatility of public markets, and the availability of private capital in Europe as well as the US. For Haines, ‘the challenge in European public markets is the secondary financing,’ while rising inflation and interest rates create a particularly tricky picture in the US. ‘If you look at the companies that are at a later stage, Phase Three or beyond, the valuations haven't changed much compared to the peaks that they were the height of the biotech boom,’ he added, ‘which means all the rest of them come down even more significantly.’
Acquisitions of public companies by pharma firms over the last four years is certainly an interesting development. Raising money on the public market should not be seen ‘as a space for unsophisticated investors’, Ashrafian noted; rather, it is something that requires ‘a story [that] has to sell itself’ where ‘clear and self-explanatory data’ is key. Meanwhile, Thomson agreed on the need to keep your message simple; she also mentioned credibility as ‘the most valuable attribute that you can have’. Meanwhile, staying ‘in front of your top target investors’ is especially important for private companies.
Managing expectations
Understanding investors’ aims and managing their expectations is paramount; Thomson notes that ‘brand new tech, brand new targets’ will require clearer ‘proof of concept before investors get involved’. Meanwhile, VC’s attitude towards pharma has changed for two reasons, according to Ashrafian: ‘with non-dilutive funding, they can help you along the way financially and intellectually, but also for the vast majority of public companies, they're not going to take their own products to market. They may believe they can take their own products to market, but the capability to launch a drug, particularly a non-read drug, is incredibly hard for any of them.’
Complicating the picture further are the perceived and real differences between companies based in the UK and the EU, on one side, and the US, on the other, for what concerns access to US capital markets. ‘The problem in Europe is we are we are even more on the mercy of what's happening in the US,’ Haines said. A self-sustaining company will need ‘US investors, or people at least who've got the US exposure really early on’. Having a US CFO, and board members with exposure to the US market, is important, as is having a US-based audit committee. Still, no matter your target market, creating relationships and storytelling are key because, as Haines noted, making money on venture dollars alone is tough: ‘it’s actually years 15-25 where you make your money’.