Biotech company initial public offering (IPO) valuations have shown resilience during the COVID-19 pandemic, compared to other industries. This is largely due to the unique nature of pharmaceuticals and the industry’s role in developing a COVID-19 drug and drugs for other serious medical needs. ORIC Pharmaceuticals is a company that went public during the height of the pandemic, on April 28, 2020.
Its Chief Financial Officer, Dominic Piscitelli, commented at the BIO International Virtual Convention 2020: “We were ready to launch [an IPO] March 16th, 2020, in the middle of COVID-19, but we didn’t feel comfortable to go public in that environment. We waited close to a month to go public… There were two deals that were launched before us that were upsized and traded well, which also gave us some level of comfort… COVID-19 did make us think of other options from a strategical point of view, such as is there room for another private round [of funding].”
Most early-stage emerging biotechs, while they may not yet be generating revenue, still need to raise funding—particularly from capital markets—to support drug development and to meet specific milestones, such as in clinical trials. However, clinical trial results may be delayed by the COVID-19 pandemic. As reported in GlobalData Coronavirus Disease 2019 (COVID-19) Sector Impact: Pharmaceutical Trade and Supply Chain Survey – Q1 2020, the clients interviewed expect the greatest impact would be on patient recruitment, with 30% of US clients and 34% of European clients surveyed agreeing. This was corroborated by William White, Chief Financial Officer of Akero Therapeutics, who stated: “If closure of clinical trial sites has an impact on your data, the data is still important, and this is where the focus has always been and would remain.”
A broad portfolio and late-stage assets are attractive qualities that investors tend to look for when investing, as discussed at the convention. Bridgbio Pharma completed its IPO in July 2019 and as mentioned by Brian Stephenson, Chief Financial Officer at Bridgebio: “Our aim was to assemble a broad portfolio to find investors who were interested in a different risk/reward portfolio, rather than the typical equity investor who invests in a one- or two-asset company… [we were able] to raise more due to a strong and receptive market, to maintain a strong balance sheet and plan for success to maintain our drug development programs.”
Crossover investors are public equity market investors that invest in early, non-public, pre-IPO companies as well as post-IPO companies. All panelists agreed that crossover investors were preferable, as White stated: “They prepare you better in terms of their diligence, time, and willingness to take risks.” Aaron Royston, Managing Partner for the life science investment firm venBio, commented: “If you can get crossovers [investors] in, [the] earlier the better.” Bridgebio mentioned they used a crossover investor for one of their rounds of financing and found it useful.
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According to GlobalData’s Pharma Intelligence Center Deals Database, 2018 and 2019 showed similarity in the numbers of total deals and total deal values for venture capital financing, the highest from the past 10 years; 2020 has already reached over 40% of the 2019’s total deal value, indicating that investors don’t seem to be slowing down, despite COVID-19.
Royston advised biotechs to “Have as much cash in the company [as possible], to have a stable investor base, and advise taking on cash due to the heightened uncertainty [of COVID-19].” Investors may be more cautious in the future so overcapitalizing is a strategy to be considered.