CLAYMONT – Four leading investors, analysts and advisors in the bioscience industry recently said that the industry has faced significant headwinds in raising capital in recent years, but there are signs that the trend may be turning.
Speaking at the Delaware DNA conference hosted by the Delaware BioScience Association on May 11, the experts noted that the initial public offering (IPO) boom of the last 2010s was largely washed out in the pandemic, and now both public and private investors are more wary of where they put their dollars.
Dennis Purcell, founder of the bioscience-focused venture capital firm Aisling Capital, said that the current era “really is a different time.” Public firms that launched with sky-high valuations based on promising preclinical data are now finding difficulty raising capital in the macroeconomic environment as suddenly stretched investors question short-term goals.
In 2022, the average runway that was raised from public companies’ follow-on fundraising rounds was 40% less than the prior year, said Will Pickering, a senior analyst who tracks small and mid-sized biotech firms for the hedge fund Bernstein.
“Investors are still seeing opportunity, but they’re looking for more validation before they’re ready to put that incremental dollar to work,” he said.
One reason for optimism, however, is the increasing drug trial successes that are driving more confidence in the market, said Sophie Jones, managing director of health care investment banking at JPMorgan Chase.
The last six months have seen 70% of drug trials turn out positive results, which is a dramatic improvement over the prior 12 months when only about 50% of them were positive, she noted.
“Before the market was shrugging … even with really great data, which that makes it really hard to raise capital,” Jones said. “With more positive [trial results], you’re seeing market reactivity in line with what those catalysts are.”
Typically as investor optimism returns in the public markets, companies also see rising interest from private investors in venture capital as they seek out early-stage companies that have the potential to one day go public, Jones added. In the first quarter, venture capital funding was down 25% over the prior year, but recent upswings in the markets may help.
“I think you will see a pickup in momentum there for private funding as well,” she said.
With that environment in mind, Rachael Bushey, partner in the Life Sciences group at Goodwin Procter, a law firm that specializes in venture capital deals, advised those early-stage companies looking to finding backing that market potential is imperative.
“So many times, I see that early-stage companies falter there – they don’t spend enough time thinking about whether this is the right avenue, and they end up going out to investors and pitching something that is not bankable,” she said.
As Delaware thinks about how it can foster a thriving bioscience industry, Bushey noted that government funding support would be needed to push the First State up companies’ prospect list.
“For states like Delaware or Pennsylvania, it’s still really lacking compared to Boston and San Francisco,” she said, noting that even Kentucky ranked a somewhat surprising third in terms of life sciences government funding support.
She added that the region’s universities, including the University of Delaware, has done a good job in the last decade in supporting professors’ work and encouraging them to spin out prospects to startup companies.
“I think you’re seeing a lot of these universities be very successful … and all of a sudden everybody else wants to join,” she said.
Purcell agreed, and noted that without a lineage of larger companies that have birthed new startups after mergers and acquisitions, Delaware would have to build its own ecosystem.
“I don’t think anybody is going to be like Boston. We have to do it our own way,” he said. “One of the things we need to do is we need to develop entrepreneurs.”
