The Year 2023 was challenging for life science startups looking to raise money. The drumbeat of layoffs and company closures was loud and clear. On the other hand, many startups successfully raised money, and added more employees. What gives?
The Annual JP Morgan Life Science Conference in San Francisco usually serves as an accurate indicator where the funding for Biotech is heading for the upcoming year. Last week, Massachusetts Biotechnology Council (MassBio) held the forum in a tightly packed auditorium to address the question on what the startups’ CEOs can expect when looking to raise money in 2024.
The panel was chaired by Imran Nasrullah, MS, JD VP & Head, Collaborate to Cure, BD & Licensing at Bayer and included the perspectives from a startup, large pharma, and financial markets represented by Cheri Ackerman, Cofounder & CEO Concerto Biosciences; Yves McMullen, Executive Director Corporate Business Development/Lilly New Ventures Eli Lilly and Company; William Pickering, VP, Senior Research Analyst - US Emerging Biotech, AB Bernstein respectively.
The overarching sentiment of the discussion boils down to a cautious optimism. On one hand, stock market’s performance in Q4, 2023 and so far in Q1, 2024 and increase in the M&A activity point to favorable economic conditions. However, the jury is still out on the Inflation Reduction Act (IRA)'s impact on innovation. Currently, very low percentage of the approved drugs were developed through NIH funds and therefore are susceptible to IRA (Bayh-Doyle act). However, with a proposed increased role of government agencies in developing drugs, the panel suggested that IRA could put a damper on developing innovative medicines.
In addition, the panel emphasized that companies with later-stage assets, and innovative discovery platforms (vs. platform companies with a series of molecules) would be the most attractive. AI by itself is no longer a differentiator. Instead, the data you use to build your AI model is what sells. The clean, large datasets are essential to come up with the new hypotheses along with sufficient computing power to analyze the data.
Furthermore, because there is a lag time between the improved market conditions and VCs’ opening the wallets for early-stage startups, the panelists emphasized the importance of seeking other ways to raise money. Notably, Yves McMullen repeatedly emphasized the need of Big Pharma to step in more to help the startups. Regarding the Big Pharma, another important point that was brought up that the Big Phrama companies whose products are close to losing their exclusivity to the generic competition would be more likely to partner on the later stage assets. In contrast, the large companies with less pressure due to the loss of exclusivity could have more appetite for the companies with innovative platform technologies.
Despite the challenges posed by the IRA provisions, according to the panelists, non-dilutive funding such as SBIR/STTR grants remain an attractive alternative funding option. That said, the companies still need to pursue venture money. To increase the chances of success, it is critical to communicate how far you can get using the least money possible and what milestones the money will enable the company to achieve because you might not get the valuation you are seeking. The panel recommended raising a larger amount of money to get to the clinical trial.
Overall, the panel sounded optimistic about 2024 as several major funds are about to close and the money is ready to be deployed. However, no one on the panel expects the funding environment to be as favorable as in 2020-2021. The adage that good science and good company fundamentals are essential to success, along with pursuing multiple funding mechanisms, holds as true as ever.
To position themselves for success, the companies and the entrepreneurs need a supportive ecosystem consisting of equipped shared space, mentoring, pitching competition, and connection to the ancillary services such as legal, accounting, internships, etc. We at Mansfield Bio-Incubator offer supportive environment to ensure your success. More information can be found https://www.bioinc.org.