An uncertain global outlook is raising questions over what the biotech investment landscape will look like in the years ahead, with the high interest rate environment, soaring inflation and Sino-US semiconductor war making fundraising tough for startups.
This “winter” could last up to 24 months as investors tighten their purse strings, or redirect capital to promising candidates that are more likely to produce value, said panellists at the Singapore Week of Innovation and Technology (SWITCH) 2022 on October 25.
For startups, the reduction in funding is not their only concern. Many also worry about the chilling effects of a limited talent pool that will increasingly impact business operations, on top of the current hiring challenges due to the global war for biotech talent.
These were among several issues raised at the panel “The outlook on biotech investments: Boom, bubble or bust”, which was moderated by Dr Lim Jui, CEO of SGInnovate.
Investors prioritise capital for existing portfolio companies
As inflation continues to wreak havoc on the global economy, investors are pulling back on funding to ensure sufficient liquidity – not just for themselves, but for their portfolio companies as well. The aim is to steady the ship, rather than spread resources too thin.
“The beginnings of a biotech winter have prompted investors to ensure their portfolio companies have wood to burn,” said Dr Ken Noonan, CEO of global venture capital fund Lightstone Ventures. “We need to make sure they survive.”
But this does not mean investors are short on cash, added the panellists, who noted that many still maintain significant reserves. The change, however, is their investment focus.
They are now zooming in on startups with products ready for clinical trials – with an eye on commercialisation – rather than pouring money into the discovery of new drugs, which will take more time and tends to be riskier in terms of costs.
Many investors are also preaching the message of prudence, advising their portfolio companies to spend wisely to avoid constant fundraising, which could lead to down rounds amid lower investor appetite. This is because Singapore’s funding system is not as well-developed as those in the United States or China, and players should prepare for some disruption, noted Mr Chik Wai Chiew, CEO of venture capitalist firm Heritas Capital.
“A harsh winter is unfolding in front of us, but if you have been disciplined with valuation, you have more space to manage the race,” he said.
While investors redirect their funds towards investments that yield faster results, the panellists also recognised that having a long-term view is important, noting that Singapore’s current status as a biotech hub took 30 years to achieve.
Funding and talent worries for startups
In response to the chill in funding, biotech startups are changing strategy to become capital conservative – pivoting operations to either extend their runway or shorten their journey to market to appeal to investors.
For example, companies are prioritising finances to push their products through to clinical stage, as investors are more likely to sink funds into drugs that may hit the market soon.
The goal for startups during their next round of funding is to convince investors of their potential growth and valuation. With the timely cash injection, they will be able to tide over the global economic slowdown before making further plans in recovery.
Dr Basil Lui on acquisition opportunities for investors
There’s always opportunity in a crisis. It is not all doom and gloom. The bold, brave and brilliant founders can do a reverse takeover, why not?
Aside from financing woes, another emerging issue facing startups in the next 12 months is the lack of biotech talent. Getting a world-class CEO or Chief Scientific Officer to lead startups in Singapore is difficult, said Dr Noonan.
As it is, academia and industry are competing to attract talent from a small pool. Some startups worry that those capable of making the switch to an industry role will decide to remain in academia, where there is more stability, especially during uncertain times.
“It is important to show we have an appropriate runway to compete with institutions as it is hard enough to get them to switch fields,” said Mr Andrew Bruce, President and Chief Executive at cell therapy company MediSix Therapeutics. “If we were to lose that momentum, it would block progress.”
Opportunities in a crisis
While the discussion centred on weather-proofing from the biotech winter, there was optimism among the panellists that the blizzard will pass – and may even present unexpected opportunities.
For one thing, the high interest rates are expected to start moderating once inflation is brought under control. This sharp, short-term pain is more cyclical rather than a prelude to a new norm.
Dr Basil Lui, Managing Partner (Investments) at global investor EDBI, believes that companies with promising clinical assets trading below net cash could provide acquisition opportunities for investors with “good balance sheets” to enter this “beaten down” market.
“There’s always opportunity in a crisis,” he said. “It is not all doom and gloom. The bold, brave and brilliant founders can do a reverse takeover, why not?”
The discussion also touched on how geopolitical tensions could present more onerous hurdles for startups to receive funding. Yet there was a shared sentiment among the panellists that biotech can be a force for good – and that politics should not be a barrier to the development of drugs that can meet medical needs around the world.
“We are harnessing scientific achievement for medical needs,” said Dr Jack Yin, Founding Partner at venture capital fund Trinity Innovation Bioventure Singapore. “I still believe that if a place has a good science foundation and good entrepreneurship, it can create excellent biotech companies regardless of politics.”
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