Get ready for biotech market recovery – Reuters | Region & Cash

July 28, 2022 – Investors are still feeling the burns from biotechnology’s flameout. And with interest rates rising and regulatory scrutiny tightening, it’s no wonder they fear being scorched by the sector.

Just look at the numbers — as of June 10, only 23 global biotechs had gone public in 2022, up from 68 for the same period in 2021. The Nasdaq biotech index is down almost 19 percent. Only a handful of biotech companies that went public in the US last year are trading above their debut price.

But this is no time for biotech companies to retreat.

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The market will recover. And when that happens, there will be a deal frenzy. Which biotech companies will be poised to take advantage of fresh funding, and which will need to turn around?

It depends on who is primed for success.

Ready, set and prepare!

It’s always valuable to hole up and focus on development programs, but it’s not the time to hide behind the scientific work to avoid thinking about funding or the longer strategic game. Now is the time for biotech company executives to meet with shareholders, board members, potential investors and employees.

Organizations need to understand how to communicate the organization’s history and vision. Clients can look out for companies with like-minded goals and strengthen those relationships. You can talk to bankers and other advisors about what can be done now to achieve long-term goals.

Consideration of shelf registration statements

Companies that went public more than 12 months ago may consider filing shelf registration statements with the Securities and Exchange Commission (SEC) sooner rather than later in order to be able to offer additional public stock when the time is right.

Additionally, more experienced companies can review their existing shelf registration statements – is there still capacity on the shelf for large-scale financing? Is the shelf going to expire soon? If so, now is the time to file a new shelf registration statement.

It can provide the flexibility needed to take advantage of a market upturn. While it may only take a few weeks to draft the relevant documents and obtain auditor and board approval, we recommend starting the process six to eight weeks in advance.

Consideration of shelf registration statements

Publicly traded companies may also consider participating in offering programs in the market. ATMs allow public companies to sell newly issued shares in an existing market to raise capital at prevailing market prices. This flexible, lower-cost vehicle helps companies raise capital quickly while bringing shares to market without a large impact on the share price.

Exploring PIPEs

Public companies can quickly raise capital outside of the public markets by offering a private investment in public equity (PIPE) to institutional investors. In a PIPE, the company usually negotiates with buyers, although sometimes a placement agent is involved.

PIPEs have limitations. If the price is below market value, exchange rules limit the offering to just 19.9% ​​of the company’s outstanding shares. And some investors don’t like PIPEs because they can’t immediately resell their shares; You must wait 30 to 45 days for the company to file a resale registration statement with the SEC.

Advise clients negotiating PIPE transactions to be cautious about providing information during due diligence. Typically, investors do not want to receive material non-public information (MNPI) during the review — or they may want companies to “clean” the information by releasing it at the time of closing or shortly thereafter so they are not restricted from trading.

Investors who acquire registered shares can resell them immediately and without delay if they wish. However, investors in a PIPE must wait for the company to file a resale registration statement for the shares purchased; That is, there is no immediate market for stocks purchased in a PIPE, and may not be for many months.

Private companies can also prepare for an upswing

As the market shrinks, competition for funding increases. Private companies must determine how much money to raise. What’s their next valuation tipping point and how much funding will they need to get there?

It helps to talk to board members to discuss funding strategy for the next year or two. Contacting industry organizations helps customers stay connected to networks.

Keep an eye out for potential deals

M&A activity in the industry is increasing and companies are looking to build or consolidate their pipelines. Larger biopharmaceutical companies, particularly those that have benefited from COVID vaccines and treatments and have capital, are looking to smaller biotech companies to acquire innovation, R&D pipelines or capabilities. Some are looking to consolidate with other companies, expanding the pipeline and pooling resources to weather the turning point in funding markets.

The recent flurry of deals could give the biotech sector a much-needed boost. Businesses can use valuation repricing to acquire targets that may previously have been unaffordable. Those with a stalled IPO or limited liquidity lanes can speak to bankers and other contacts in search of a potential M&A partner who might be the perfect fit.

Telling the right story (to the right people)

Of course, funding is just a bridge to where a company wants to go next. Where. When. As. And why.

Sometimes early-stage companies first focus on getting funding before looking at exactly where they want to go and why investors want to invest in them. This can be an expensive mistake. Know the company history, the value proposition and how to tell it. Be ready. For the first impression there is no second chance.

Be ready to answer the questions about why the company is differentiated, why investors should invest, and where the company is headed: one year, three years, five years and beyond. Why would investors want to commit to them for the long term? How is the company different? Specificity is key, as is sharing ideas with the team.

Talk to trusted advisors about it

Companies should communicate frequently with any outside consultants they can introduce, share best practices, and develop creative strategies. Private companies can leverage these relationships across the investor ecosystem and find new funding opportunities. Public companies benefit from lessons learned in the trenches, what did and didn’t work, market trends and creative financing.

cooperation (with care)

Collaboration continues to grow as large corporations strike deals with small to medium-sized companies that can give them an advantage in promising next-generation therapies and medicines. But biotech companies can also look to each other.

Consider how collaborations can advance the company’s technology, pipeline and management team. Investors want to see diverse, robust pipelines — where one investment can ideally give them many more shots on target — but with efficient use of capital.

These conversations come with a degree of risk. Create clear parameters about what information to share and when. If agreement does not result from the conversation, it is very difficult to “ignore” what has been learned, regardless of what the NDA offers. Understand the parameters of these business conversations. Knowing where the boundaries are and planning what information to share and when is crucial.

Determining the ideal strategy and what should and should not be disclosed is key. An experienced legal team can develop documents that reflect strategy and go beyond the simple non-disclosure agreement. They can give advice on how to behave and work within the right parameters.

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.

Rachel Bushey

Rachael Bushey is Chair of the Health Sciences Division at Troutman Pepper. She represents life science companies, boards and executives in capital markets and M&A transactions and advises boards on corporate law. She can be reached at rachael.bushey@troutman.com.

Jennifer Porter

Jennifer Porter is a Partner in Troutman Pepper’s Health Sciences Division. She represents life science companies, boards and executives in capital markets and M&A transactions and advises boards on corporate law. She can be reached at jennifer.porter@troutman.com.

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