Will the Biotech Unicorn Soon Be on the Endangered Species List? , biospace
are today 1,170 unicorns across all industries – an all-time high, according to CBI Insights, about 8% of them are in health careEspecially with many in biotech.
The pace of unicorn creation – which is still fairly fast – is slowing, however, as economists predict an impending recession. The IPO window is completely closed. Venture capitalists are holding their cash tight, and Federal Reserve’s July meeting Interest rates are expected to rise. In such an environment, is unicorn status still within reach of young biotech companies?
in the investment bank of Castle Sulpeter & Co.., Managing Director Ira Z. Leaderman and Margaery Fishbein told biospace There are compelling reasons why unicorn status — defined as a private startup company valued at $1 billion or more — may or may not be possible today.
to be a unicorn or not to be a unicorn
Looking at the case in favor of achieving unicorn status, Fishbean said, “Public market valuations are low and only a limited number of IPOs are taking place. While VCs are shrinking their portfolios and becoming more selective,” they are pooling cash for follow-on financing for their best portfolio companies. “Many VCs have a lot of money, and good science is always valuable.” In this environment, companies can raise funds without going public and have additional time to gather more clinical data between funding, thus making themselves more valuable to potential investors.
He said the case against becoming a unicorn is two-fold. The public company’s valuation is significantly lower than it was a year ago, and “it is back in the private sector. So instead of having continuous financing rounds at high valuations, low public market valuations can result in flat or down rounds.”
The growing appetite for mergers and acquisitions among large companies, coupled with an unattractive environment for IPOs, can lead to deals even before innovators reach billion-dollar valuations.
“The things that drive the valuation are great science that hopefully leads to great clinical data and a really experienced management team,” Liedermann explained. “Also, few acquirers are willing to pay a premium price for early stage companies that have amazing data and sometimes they just want to make sure their competitors don’t get it. This in turn increases VC investment in certain sectors and also increases the valuation of the company,” he said.
Meanwhile, “generalist investors have largely left the biotech market. These are people who have more limited knowledge about the science involved and can make very significant losses,” Fishbein acknowledged. That said, “smart money is still in the biotech space, but it is selective.”
Frank Milone as Co-Founding Partner Fiondaella, Milone & LaSaracina LLPVC, a Connecticut advisory and accounting firm active in the biotech industry, explained, “While VC funding and acquisitions will continue, the criteria will be different. There will be a greater focus on financial fundamentals.
“When the economy warms, investors are more willing to take risks. In the current environment, startups need to be clear about how their technology differs and how it provides value. They have to back it up with data that promises early adoption and scalability.”
Where Will Future Unicorns Come From?
Looking ahead, Leiderman and Fishbein said the therapeutic areas that they think may be most likely to generate the next flock of unicorns are cell therapy for many indications beyond oncology, neurological conditions, and the orphan drug space.
Building a company to unicorn status certainly takes more than good science and good management. “Company leadership needs to know how to effectively conduct clinical studies and present that data and, therefore, attract the right investors. This is important,” said Leiderman By “right investors,” they mean influential investment groups with proven biotech track records – “investors who can lead the herd.”
“Clearly, many unicorns have come from the recession, and biotech is no different,” said Keisha Mays, CEO and founder of Just Fearless, a global business development firm focused exclusively on accelerating the growth of female-owned firms. focused, told biospace, “Biotech hasn’t even begun to peak.” The question for investors is “how to find that needle in the haystack.” Mays says he is optimistic about the industry, “even as the recession looms.”
Ultimately, although investors may want to hold a stake in a unicorn company, “there are many other things that offer distinct opportunities, or that bring incremental value,” Fishbein said. “People would love to have a unicorn, but it’s quite unpredictable and rarely necessary.”
