The approval of the referendum for the United Kingdom’s withdrawal from the European Union (“Brexit”) has cast a shadow of uncertainty on global financial markets. All industries, including biopharma, are scrambling to discern what the UK’s vote means for them.
Immediately following Brexit’s approval, the S&P 500 and NASDAQ Biotech Index dropped -3.65% and -4.41%, respectively.
In the past year, public biopharma markets have faced significant pressure and the number of IPOs has dropped substantially. Brexit will likely compound such issues as investors likely play a ‘wait and see’ game in the face of uncertainty.
On top of the global uncertainty prompted by Brexit, there is considerable fear within the biotech community that negative rhetoric surrounding the biopharma industry and pricing potentially emanating from the upcoming presidential election conventions and debates will put further pressure on biopharma public markets.
While this doesn’t preclude a company from accessing public or private capital, we’re likely to see market uncertainty applying downward pressure on valuations and higher hurdles of “de-risking” before significant investments are made. As such, development stage biopharma companies may be forced to take highly dilutive financing or face a period of capital constraint.
As an alternative to financing, development stage companies may seek out M&A or regional/global partnerships as a means of extracting value from their current programs. While Brexit may impact some M&A/licensing opportunities, particularly with large pharma companies and/or European based biopharma companies, a wide range of potential parties are still seeking to in-license or acquire promising assets.
Strategic transactions may provide a non-dilutive capital infusion for the company or provide direct funding for continued development. While not without their own risks and downsides, strategic transactions may be a critical source of capital when access to public or private capital becomes constrained.
The transaction landscape, whether financing or strategic, is fraught with uncertainty and will ebb and flow in favor of one transaction type vs. the other. Pursuing both financing and strategic processes in parallel allows companies to maximize the probability of success and maintain a viable path forward in the event unforeseen circumstances prevent the other.
For additional information on how to optimally parallel track a financing and strategic process please consider attending Locust Walk Institute on September 14th and 15th in San Francisco.
Register by August 1st to get the early bird discount.
Written by Chris Baird