What Do Biopharma CFOs Think About The Market's Future?
By Rob Wright, Chief Editor, Life Science Leader
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To say the biopharmaceutical stock market has never been hotter would not be an “unprecedented” overstatement. As of late August, there have been more IPOs than in all of 2019. If this pace keeps up, there could be more than 70 biotech IPOs before year’s end. But that’s not all. According to Bruce Booth, a partner at Atlas Venture and Forbes contributor, since the first virtual roadshow in April 2020, nearly every biotech IPO has, “priced at or above the range,” with demand being strong, and “upsizing above the range has been a common occurrence.” This might seem counterintuitive during a global pandemic. Afterall, lockdowns sparked by the coronavirus not only caused record unemployment but made the U.S. stock market so turbulent it had even the hardiest investors a bit queasy. But the biopharmaceutical industry is the right one for the times, with (at the time of this writing) 754 unique active COVID-19 compounds in development.
For this year’s annual finance outlook article, appearing in Life Science Leader’s December 2020 issue, we had 10 financial executives take part — 8 being biopharmaceutical company CFOs. As we couldn’t fit all of the wisdom offered into this year’s print edition, we share it here via our Beyond The Printed Page online section of the magazine. If you like what you read, then why not become a Life Science Leader subscriber today. Afterall, you don’t want to miss out on the insight offered by the more than 50 biopharmaceutical industry executives talking in this year’s annual outlook issue or any of the other incredible biopharmaceutical executives we are lining up for 2021.
IN ANTICIPATION OF THE “LIQUIDITY PUNCH BOWL” BEING PULLED, WHAT ACTIONS OR CHANGES WILL BE UNDERTAKEN TO ENSURE FINANCIAL DISCIPLINE AND OPTIMAL RESOURCE ALLOCATION?
JOHN HAMILL, CFO, WINDTREE THERAPEUTICS: Pre-revenue or development-stage companies need to be nimble. If they’re not actively raising funds, they better be preparing for the next raise. That means you need to have a product/service development strategy that lays out where you are today, where you need to get to, and at what cost. You may not need the cash today, but having a strong balance sheet puts you in a position of strength, and allows you to raise funds with favorable terms and weather “storms” more easily. A CFO also needs to balance being able to bring in funds and manage existing stockholder concerns on dilution, which isn’t easy. If you are not disciplined in your approach to financing, you will most likely be completing a financing with much less favorable terms.
IF WE HAVE A BUNCH OF COVID-19 THERAPEUTIC AND VACCINE DEVELOPMENT FAILURES, COULD BIOPHARMA BE THE NEXT DOT.COM MARKET BUBBLE TO BURST IN 2021?
HERB CROSS, CFO, ATRECA: While much of the recovery in the Nasdaq Biotechnology Index (NBI) may have initially been driven by investor enthusiasm for the potential of a COVID-19 vaccine or therapeutic, solid fundamentals also have been driving the market. Significant M&A activity in the sector over the last 12-18 months, combined with a steady stream of clinical successes and approvals by the FDA, have left healthcare-focused investors with excess capital to deploy. Meanwhile, the pandemic has had a far less acute effect on the life sciences industry relative to most other sectors, leading generalist fund managers in search of yield to invest in biopharma companies or funds they may have previously viewed as too risky. Furthermore, most of the capital raised via recent IPOs and secondary financing has gone to companies without COVID-19 programs. That said, generalist interest in the sector could certainly be dampened by high-profile setbacks in leading COVID-19 development programs. While such events likely would have a cooling effect on the capital markets, to characterize the current environment as a bubble driven by COVID-19 hype feels like an overstatement given the fundamental strength across the sector.
SANJAY SUBRAMANIAN, CFO, OCUGEN: The pandemic has been a stark reminder of the critical role the biopharma industry plays in our lives. The scientific and technological breakthroughs over the last two decades are paving the way for new therapies and cures to be developed by companies around the world. This includes the development of therapies for COVID-19 and other diseases. It takes time, effort, and capital to bring new therapies to patients. The market recognizes this and is willing to bet on multiple approaches. This is capitalism at its best and not an indication of a bubble. In fact, the valuations in biopharma pale in comparison to those in the IT space where the number of IPOs have mirrored the days of the dot.com market. While the path to successful vaccines is not easy, it is only a matter of time when one of the many approaches will succeed. But we cannot put everything else on hold while we wait for the pandemic to end.