We were proud to host a fantastic panel chaired by BioCentury’s European Editor Stephen Hansen with Soren Moller, Managing Partner of Novo Seeds; Karin Kleinhans, Partner of MRL Ventures Fund; Hakan Goker, Managing Director of M Ventures; Roel Bulthuis, Managing Partner at Inkef.
This panel of Venture Capital (VC) investors discussed the strength of private markets in enabling the next generation of industry disruptors; the chilling effects of a public market cool-down; the impact of new political initiatives; and the role new entrants in the industry may play.
In a context where billions of dollars have been raised and invested in the Life Sciences industry by VC funds in recent years, can this be sustained with more volatile global markets coupled with high inflation and increasing interest rates? Below is a summary of the top takeaways.
Navigating the market
In the present market, the priority for VCs has been to make sure portfolio companies have enough cash runway. They need to be able to reach key milestones and value inflection points which will take them to the next stage of growth and from where they can secure further financing from existing and potentially new shareholders.
In the early-stage, company creation phase, there is still so much innovation and unmet need that VCs will – regardless of public market prospects – continue to invest. However, over the last two years, the bar has gone up and the quality of data and management teams has become even more crucial. VCs will continue to support companies, but there is lingering anxiety on how uncertainties – such as macro, political, and the industry environment- will resolve.
Is the window for preclinical IPOs shut? As companies are staying private for longer the implication is that more companies will be coming to market with Phase II data. This is good for the sector, as preclinical companies shouldn’t IPO and instead should wait for more mature data and growth.
Most biotech companies still need big pharma’s go-to-market capability. Interestingly, in the emerging area of Industrial Biotech, in response to the urgent need to create solutions for the green transition, companies usually have to scale manufacturing and even go to market themselves.
With larger funds and Private Equity (PE) firms coming into the sector, Europe has the chance to build the next generation of healthcare disruptors such as Genmab, Galapagos and BioNTech. Europe has the potential to build a new cohort of biotech companies which can execute and either list on NASDAQ or be sold to a PE fund.
A defining ACT
The Inflation Reduction Act (‘IRA’) is currently the main topic of discussion across the pharmaceutical sector in respect of US government policy and industry regulation in pricing and reimbursement. Key aspects are the risk/reward profile of biologics vs small molecules, as well as increasing costs in drug development. Here, Europe could have a competitive edge, as the expectations is that it will be easier to get value out of a molecule in Europe than in the US once IRA is fully enacted.
Current market conditions can also be seen as an opportunity. In the last few years, VC funds have grown very quickly in size, number and speed of deployment. The cycles between funds have also shortened from seven years to three to four years. No player can rely on capital markets for both their short and medium-term financing strategy, but VCs can’t afford to sit on the money either. Larger investments will be deployed, and entrepreneurs, founders and investors will have the opportunity to build more companies in Europe.
No matter how we look at it, assets under management over the last 10 years went from $90 billion to $10 trillion. Most money managers, whether specialist or generalist, have made money and they have to allocate it, PE being a case in point. With $10 trillion, the healthcare industry at large, and Europe in particular, is well positioned to change the medical paradigm across a wide range of diseases over the next decade.
In summary, as one of our guests said:
“It’s great to see venture capitalists and private equity firms showing that they want to, and will, deploy a lot of capital into the sector. This is very encouraging.”