The State of Biopharma Funding

What funding challenges were discussed at the J.P. Morgan Healthcare Conference?

I sensed a high level of stress at the conference from all the various types of players, some looking for funding and others looking to inject cash in the right companies. Big pharma is in the best position, with money to invest and many potential licensing and M&A deals for them. In fact, several large acquisition deals were announced during the conference. Big pharma also has the luxury of time in choosing the right companies in which to invest, and in minimizing their risk.

Of course, the biotechs are hoping to be acquired. We caution our clients, however, that they can’t build their funding strategy solely around that hope because it’s too uncertain. There’s no guarantee of triggering a deal with big pharma. And there’s also a gap between the stage when a biotech company needs funding and when they are far enough long in development to be of interest to funders.

So biotechs need to follow a multi-scenario approach. One of the roads is venture capital (VC) funding. VCs are of course a big player in the biopharma ecosystem, and like big pharma, they’re receiving lots of offers; in fact, I would say that they are saturated with options. Many companies are asking VCs to invest and making good pitches, but the problem is that it’s extremely difficult for the VCs to identify the best targets. They don’t always have the time to investigate each asset to understand its value and differentiation, especially when subtle. To make an impression on the VCs, the biotech firms need to provide a convincing argument on page one of their presentations – but early stage biology is so complex, it’s hard to convey quickly. The biotechs say, I can explain my differentiation but I need more than 30 minutes in a meeting where we’re rushing between coffees. Meanwhile, the VCs are meeting hundreds of these companies a week. It’s a challenge for everyone.

Finally, we have the private equity (PE) firms. Their situation is the opposite of the VCs; they have very few targets and are struggling to find companies that are worthy of investment. PEs are clear on the level of risk they want to take; most of them are not investing in clinical stage drugs because that’s too risky. Drug development is often a binary event, meaning that if the clinical trial is positive, the investment pays off, but if it’s negative, the investment is worthless. Rather than take that chance, PEs are looking at services companies, such as contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs), and commercial stage multi products pharma companies. In many cases, though, PEs are frustrated because they are often too late to the party. The target companies start running a competitive process, everyone is bidding, and it becomes too expensive. PEs need to find companies before they officially go on sale, and there’s not many of those out there. The short list of good targets for PEs is very small.

What should biotech companies be doing to secure the funding they need?

For biotechs, we recommend that even when you’re in the early stage, you develop a transversal view and approach. For example, you should not limit your pitch solely to the scientific case. It’s tempting to focus on the short-term and the science hoping for it to be enough and say that you can’t precisely answer the investors’ questions about the future. But as much as possible, you have to depict the end environment for your product when it’s launched in the market. That might be ten years from now, but you should at least be able to shed some light on the commercial aspects – price, commercial manufacturing plan, end market. Even if you’re just sharing a variety of potential scenarios, you need to reassure investors that you’re thinking long-term and holistically

What’s true for everyone involved in the industry is that the personal connection matters. While the asset should be the main driver for investment, investors want to work with people they trust, whose track record they know, whose company culture is compatible with theirs. For biotechs, it’s difficult to run your company, handle the technical side, and also do the necessary networking. That’s where we come in. Alira Health is active on most healthcare networks and we help connect people. Investors need networking help too. They don’t necessarily know all the companies out there, but we know them because they’re our clients.

What trends were discussed at the J.P. Morgan Healthcare Conference?

A major trend in biotech is that long-anticipated products are becoming mature. For example, antibody drug conjugates (ADCs) have been looked at for some time, but now this technology is mature, with 1st generation products on the market. Most companies and investors are comfortable with the concept, and we’re seeing investment in 2nd or 3rd generation platforms with exciting products. Today, the theoretical potential of ADCs is a reality.

Other new technologies, including cell, gene, and microbiome therapy are also becoming a reality. Challenges still exist, however.

For cell therapy, the problem is that some technologies have a manufacturing process that is not yet scalable. This is becoming an issue because the number of patients that could be treated far outweighs the current production capacity. With gene therapy, the technology is there, we can treat and cure patients on several diseases. Many therapies are recently approved or close to approval. The problem is pricing and the dilemma of “one time payment vs. annual pricing”, and that is not yet solved.

Microbiome therapy is a really exciting area and I’m a big fan. Most approaches in the field are truly holistic (taking into account a product and its ecosystem) and we will soon know how to apply it to remaining unmet medical needs across major therapeutic areas. At the end of last year, the first microbiome drug was approved, so now people believe it’s feasible to put these drugs on the market. Some major companies are in the clinical stage and we will likely see this space become a reality soon. The biggest trend I see impacting the whole ecosystem is questions, worries, and challenges around patient data. For decades in pharma, we used a lot of data from providers and payers to develop products. Very little of the data came from patients. Ideally, patients should be at the center of development, and legislative changes regarding access and use of patient data has now made this goal a reality (read The Future of Healthcare: Patient-Owned Data by Alira Health CEO Gabriele Brambilla).

When patients use an app to manage their disease, the resulting data can inform both clinical and commercial developments. For example, technology is great for gathering real-world evidence after approval for cell and gene therapies, where you sometimes need to follow patients for a long time. Our clients are asking more questions about patient data; fortunately, Alira Health has been innovative in patient data and patient engagement for years, so we’re ready to help.

What has changed since the last J.P. Morgan Healthcare Conference?

The last in-person conference was before the pandemic. The world has changed! The face-to-face interaction is so important – the digital version simply wasn’t so effective. You have to meet in person to consider doing a deal together.

Because of the pandemic and the focus on vaccine development, the public learned more than they previously understood about pharmaceuticals. The COVID-19 vaccine achievement certainly put the industry in a positive light. And yet the healthcare industry is in crisis, which should not be the case in the long term. This is the number one industry in the world, and there is no reason for valuations to be low for a long period of time. There are many challenges, and maybe valuations were actually too high during pandemic, but the fundamentals in healthcare are very good and innovation has never been so strong. We should be optimistic for the future.

What is your major takeaway from the conference?

Healthcare is a complex and fast-changing environment, and navigating it successfully means understanding the entire ecosystem and linking the different aspects together (data, product, commercial, scientific/medical, etc). This transversal view is challenging to adopt alone, and in order to succeed, it’s important for you to be part of the ecosystem, whether you’re a biotech company or an investor.

At Alira Health, we have developed a robust strategy for our clients to overcome these challenges and find success in this exciting time.