Overcome Myths That Slow Investment in Biotech and Pandemic Firms
Presenting to potential investors is an art, especially when they don’t fully understand the life science industry or have misconceptions about pandemic-driven businesses. Peter Adams, Executive Director, and Dave Harris, Director of Operations at Rockies Venture Club (the oldest angel investment group in the United States) explored these myths and proposed strategies to counter them during a recent webinar hosted by Johnson & johnson Innovation and Authority for Advanced Biomedical Research and Development (BARDA).
Potential investors have five major myths about life science companies, Adams said. “Investors think:
- It takes 10 to 20 years to get out.
- Life science companies need a billion dollars.
- The first investors in the state are “crowded”.
- The regulatory risk is too great.
- Life science companies have no income and are never profitable.
The long exit times and the need for substantial capital “are true in some cases, but most of the time, exit occurs after a New Investigational Drug Application (IND) has been filed with the FDA, or after phase I or phase II trials. In medical devices, lead times are shorter and the need for capital is lower, ”Adams said. The risk that early stage investors will be crowded together – forced to agree to undesirable terms – is also valid, but not inevitable.
To counter these concerns, it is very important that biotech executives think through their capital needs and deadlines in detail. At the Rockies Venture Club, “we’re looking through a ‘venturenomics’ lens,” Adams said. “We’re focused on how businesses can generate a return through great exit. “
Companies developing vaccines, therapies or diagnostics for the COVID-19 pandemic have an additional set of myths to counter, he said. Potential investors think:
- The pandemic will end before the product hits the market.
- There may never be another pandemic – at least not for a long time – so the investment is too risky.
- Government – not venture capital – should invest in detecting, mitigating and responding to pandemics.
- We have enough problems now and we shouldn’t waste time and money focusing on something that might never happen.
The reality is that the time between pandemics is getting shorter and shorter. The 20e century faced the Spanish flu from 1918 to 1920, without a subsequent pandemic until Influenza pandemic 1957-1958 who is originally from East Asia. Since then the world has endured the 1968 influenza pandemic originally from Hong Kong, human immunodeficiency syndrome (HIV) from 1981, severe acute respiratory syndrome (SARS-CoV) in 2002 and 2003, Swine flu (H1N1) in 2009, Middle East Respiratory Syndrome (MERS) in 2012, Ebola virus disease in 2014 and now COVID-19, which is ongoing.
The United Nations suggested last year that there is 1.7 viruses not found in mammals and birds, and that about half of them have the potential to infect humans. With the increase in human mobility on a global scale, the potential for the rapid spread of any infection around the world is exacerbated.
However, many of the technologies developed to detect and combat the SARS-CoV-2 virus are applicable to other ailments. And, as Adams said, “Frankly, pandemic deals are profitable enough even without government backing. We are optimistic about pandemic agreements. ” Here’s why:
- Most have a clear path out.
- The outings tend to be attractive.
- They have a social advantage.
- Deal flow is important (because many seed funds and angel investors avoid life sciences).
- There is a high level of innovation.
- Life sciences enterprise venture capital funds are active, but often they do not lead the transactions.
- There are more possibilities for non-dilutive grants.
Introducing investors, “people assume there is a low performing environment, so put the financial impact first,” Adams advised. Then show how your COVID-19 product applies to future pandemics and – most importantly – non-pandemic situations. “Plus, research your competitors meticulously. “A lot of companies are focusing on the big players, but a lot of start-ups are looking for similar solutions. “
The talk to investors should include exit opportunities and possible partnerships, as well as the patents and intellectual property that are granted as well as those in progress. “There are many possible exit ramps to provide liquidity to investors,” said Harris, including seed funding, Series AD venture capital funding, expansion or mezzanine funding, mergers and acquisitions and initial public offerings. “Investors need to know what these (possible exit points) are to frame their investments.”
The regulatory strategy and environment are also important. Discuss both costs and timing, and “detail the regulatory steps,” Harris said.
Non-dilutive financing is an important way to reduce project risk. In their presentations, business leaders should detail grant opportunities as well as past and current grants. Small Business Innovation Research (SBIR) and other agency grants not only provide funding, but also provide a degree of proof of concept that helps reassure potential investors.
BARDA companies, which the US Department of Health and Human Services (HHS) announced last summer, is another funding opportunity for projects that might otherwise not receive BARDA’s interest. It is designed as a stand-alone investment fund that uses both venture capital and equity financing to accelerate healthcare technology developed specifically for health emergencies and threats.
In any presentation to investors, once everything has been covered, bring those fundamentals together into an analysis of technical, regulatory, financial, market and competitive risks, Harris advised. This will help potential investors understand where your business and technology fits into the overall ecosystem. Therefore, they can better assess its potential.
That said, “the pitch is just the first step,” said Harris. As an angel investor, his goal is to quickly find a lead investor to avoid repeating over and over again. “It takes time and business, so look for an effective lead investor to act as an advocate and share their due diligence” with other potential investors to speed up the investment process.
At the end of the day, “Investors don’t invest in science or technology during a pandemic. They invest in companies, ”Harris said. “Therefore, science should generally be less than 25% of your business case. Keep that in mind. “