What are Investors Looking for in a Biotech Startup?

The biotech industry is currently enjoying positive visibility, thanks to its role in fighting the COVID pandemic. Historically, it has been challenging for small biotech companies at early stages to develop products, owing to huge costs involved in infrastructure, clinical trials, and regulatory issues. For entrepreneurs with solid science solutions to unmet clinical problems, several KOLs in biotech investment shared their views at the BIO Asia Taiwan conference on different ways to raise capital and assure investors of good returns. 

Hongbo Lu, Managing Partner at Vivo Capital, moderated a session titled “Growth with Exit Strategy.” with industry experts in capital and venture investments, M&As, business development, and entrepreneurship. The panel discussion session covered historical and current trends for IPOs in biotech, how big pharma scout partnerships, and experiences from serial entrepreneurs about fundraising. The panelists concurred that the Covid pandemic accelerated growth in the biotech industry, enabling ample funding opportunities for products with proven track records.

The panel comprised of:

1. Lee Chang Liu, President, and CEO, EirGenix Inc
2. Donna Martin, Global Head of Sanofi Pasteur BD and Licensing 
3. Matthieu Merlin, Global Head of Sanofi Pasteur BD and Licensing 
4. Sinclair Dunlop, Managing Partner, Epidarex Capital
5. Darren Carroll, Partner at Polaris Partners
6. Michael Brinkman, Managing Director and Head of Pharmaceuticals Investment Banking, Jefferies LLC
7. Grace Yeh, Chairman, and CEO, Onward Therapeutics

Biotech IPOs- Past, Present, and Future Trends

Brinkman reviewed the history and current trends of the Biotech market. Based on the data Brinkman shared, biotech IPOs have steadily increased since the early 2010s. The market has recovered and stabilized post the COVID outbreak. Currently, over 15 companies are in the pipeline to launch IPOs, and the trend shows that investors are willing to invest.

He noted one remarkable difference in the market since the 2000s. Currently, more early-stage companies are going public as opposed to companies with Phase III clinical trials, indicating larger risk appetites of investors and anticipating better returns. As a result, valuations have increased by 5X, and the average IPO has gone up by 3X.

Comparing the Hong Kong Exchange and Nasdaq for Biotech, he mentioned that Hong Kong Ex has higher valuations and can raise more capital. At the same time, the IPO process is longer and has more regulatory interactions. It is limited to companies with complete Phase I data to maintain the standards for a new market. Current trends are positive with high returns and very likely to attract investors.

While speaking of what piques an investor’s interest, Brinkman said that breakthrough technologies and gene therapy products which have proven data from pre-clinical and, if possible clinical trials are especially attractive. It helps if the products have a sizable market and target specific clinical needs. Startups backed by people with a track record of raising money and returns also stand higher chances of getting funded. 

He noted that with massive amounts of capital available for investment, breakthrough science that offers true solutions and value with the right product offering that can cater to a big market and appeal to big returns, billion-dollar valuations are not uncommon. 

Venture Capitalists’ Checklist for Startups

As venture capitalists, Darren Caroll and Sinclair Dunlop shared their views on how they evaluate a company for possible funding. Carroll mentioned that when building portfolio partnerships, it is prudent to look at companies that have high innovation and work in complementary areas.

He agreed that there is massive venture capital available in biotech which corporate buyers may not be able to compete with. Since most big pharma companies have patent expiry and other regulatory policies, it is important for them to think of strategic acquisitions so as to maintain growth. He said that venture funds do well with companies with a passion for their product, intellectual risks, which can offer products for a large unmet need.

He mentioned that VCs could make long-term investments and provide complementary expertise to build the company. Caroll noted that 6-9 months before value inflection is a good time for companies to start their funding pitch.

Speaking of venture investor philosophy for early-stage companies and future trends, Dunlop said that people who have delivered returns to previous investors are valuable. VCs also routinely invest in academic researchers with novel products which have a significant market size.

They also focus on emerging markets without much venture capital presence as opposed to regions saturated by VC funding. He indicated that early-stage investors in start-ups need to manage the company through the development pipeline and provide the expertise to build the product and company. 

Corporate Buyer Perspectives of Big Pharma

Martin and Merlin shared Sanofi’s strategies for Corporate M&As and Business Development for various products like vaccines and therapeutic molecules. Martin talked about limited opportunities for partnering on late-stage clinical products, indicating that early-stage partnerships benefit both parties.

So, companies with complex and new biological methods should look for partners that can support regulatory affairs and infrastructure while focusing on developing the product. A single product may need multiple partnerships, which a big buyer can support and will be difficult for a single biotech company.

The pandemic spurred unprecedented levels of partnerships across companies, governments at local and global scales, which should continue. If the acceleration of platform building is extended to non-covid products, we may have a net positive outcome.

Giving pointers for companies intending to partner with pharma, Martin said that early and regular interactions are helpful to develop business development transactions where both parties can mutually benefit. She shared that Sanofi has multiple tools to engage with companies at various stages, and it only helps to reach out sooner than later.

Merlin agreed that M&As and partnerships are key tools for big pharma. Covid has enforced digital partnerships and new business models. A crucial factor is to be able to differentiate between hype and value. Asia has made a lot of progress in the last decade with improving research capabilities and infrastructure. With the right partnerships, biotech innovation in Asia is expected to grow. 

Lessons in Raising Funds from Serial Entrepreneurs

Dr.Yeh and Dr.Liu shared their experiences of starting their companies in Taiwan. When asked if they had exit strategies in mind when they started out, Dr. Yeh said she was not sure of the path her company would take- IPO or M&A, since they only had pre-clinical data.  However, in 2012 with phase III clinical data, her company Pharmaengine went public at $300million.

Currently, at Onward Therapeutics, she mentioned that they invest in early-stage oncology products such as bispecific antibodies, gene therapy, and platforms to monitor cancer metabolism, etc. She mentioned that in her current role, she espouses a ‘buy and build’ model where they invest in promising technologies/ products which are early in their development and help them through the product life cycle.

While giving advice to Asian entrepreneurs, Dr.Liu mentioned that his company was funded by a combination of VC funds, government grants, and corporate partnerships. He mentioned that VC funds always come in with an exit in mind, while partnerships can sustain longer terms. Since EirGenix has a CDMO business and a product development pipeline, they could leverage one for the other to expand their business.

The panel discussion brought to light what investors require from startups to be considered for funding. A biotech company with a potential product can choose between venture capital funding and a big pharma partnership to leverage their expertise for growth and build a successful product. This could help investors exit with higher returns.

Related Article: BIO Asia-Taiwan Opening Day Highlights: Michael Houghton Talks About Vaccine Development, Robert Langer Shares Journey of Creating Breakthrough Technologies

Author

Sahana Shankar