Recent reporting by the Financial Times shows that valuations and funding for biotech companies has fallen significantly, as “just nine biotech companies have listed in the U.S. this year, raising a total of $1bn … almost 60 companies did so in the same period last year, tapping investors for $7.4bn.” This represents a 70% decline in the total enterprise value of publicly traded, global biotech companies from February 2021 to May 2022. While this trend is consistent with a broader slowdown in the general IPO market, venture capital funding for biotechs has also slowed - though some of that may be due to an anomalously bullish period in 2021.
These trends underscore a need for biotech companies at various stages of growth and product development to pursue and deploy capital more effectively. Below are a few ways companies can solve the problem of investors being more hesitant in the biotech market due to factors such as declining value or companies that have not demonstrated success in drug development, particularly for unmet needs:
A common theme throughout is focusing the company’s resources on demonstrating a clear achievement of clinical milestones. This can help significantly de-risk the company’s outlook based on tangible results that reinforce the promise of the company’s drug pipeline. In addition, while it is 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 get to an IPO or other strategic exit. In other words, by communicating a clear business plan that is realistic about timelines, supported by existing clinical achievements and focused on showing how new investment will be used to achieve the next milestone, companies can increase investor confidence and in turn receive better outcomes for financing.