Navigating the Biopharma Depression:More Pain or 2023 Gain?
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October 20, 2022, webinar summary
The biopharma market has been challenging for both investors and companies as we enter the final leg of what has been a painful 2022. Private financings are down 80% and IPOs down 95% in volume compared to Q3 2021, while the performance of the XBI has dropped ~40% over the last 12 months. With the Federal Reserve continuing to raise interest rates and the looming impact of the Inflation Reduction Act, the macroeconomic headwinds at play bear uncertainty across the Biopharma sector. In this webinar, Locust Walk and other industry leaders exchanged their views on how to navigate this “narrow” depression and what companies can do to successfully make it to the other side.
The panel includes: Rowan Walrath, Life Sciences Reporter at the Boston Business Journal (Moderator), Neil Higgins, Managing Director at Locust Walk, Amy Liu, Investor, Healthcare VC at Mubadala Capital, and Philippe Lopes-Fernandes, EVP, CBO, Member of the Executive Committee at Ipsen.
The panel did agree that it was a bit of an unexpected year. Coming off a historic downturn in Biopharma, there were expectations of increased M&A and a recovery in the public markets that have yet to be seen. While we don’t know when a broad rebound of the sector will take place, there are a few factors we look for as signs we are getting to the other side. For one, there needs to be fewer public companies trading below cash and an overall consolidation of companies through sales, reverse mergers, and bankruptcies. Equally as important, the Federal Reserve eventually will have to stop raising rates for generalist investors to renew their interest in the sector. Biotech will need both general and specialized investor re-engagement for a substantial recovery as specialists cannot prop up the number of companies that require capital. In the meantime, we fall back on the roots of biopharma and look to good science and good data to drive progress in the market. What the panelist would like to see is for public stocks to react positively to positive data readouts.
There is a significant amount of dry powder out there waiting to be deployed, particularly in big pharma’s pockets, which should give us confidence in an eventual rebound. One key influence of the market the panel discussed was the return of PIPEs. Investors and big pharma will look for stability in the public markets to anchor valuations and in turn encourage the return of generalist capital to the sector. In the eyes of the panelists, what could also drive market momentum forward is simply the completion of more deals. As more high-profile deals get done, it will cause a ripple effect across the sector. However, for more deals to get done, companies and investors needs to have a greater alignment on valuation. On the private side, companies need to put an emphasis on pipeline prioritization and focus on what it will take to get them to their next value inflection point as capital efficiently as possible. Companies with a strong management team, good science and who are reasonable on their valuation expectations are getting funded. The panelists agreed that buyers in the industry aren’t looking for the best bargain, they are looking for the right deal with the highest strategic fit.
Although we continue to operate in a down market, the panelists are confident in a strong return. For many biopharmas, there is limited experience across management teams dealing with capital constrained environments. It will take time for the market to fully recover, but the long-term industry fundaments have not materially changed. Innovation is still highly valued as the industry continues to pursue life-saving technologies to better our society. The panelists emphasize the importance of aligning on what is ‘mission critical’ doing what you can to reduce cash burn. Have meaningful dialogue with your Board of Directors and Investors on the path forward. It’s important to be flexible on what it will take to reach your next inflection point.
Listen to the webinar to hear first-hand from these industry leaders how biopharma can capitalize during these uncertain times.