There are many factors affecting small biotech companies today; however, liquidity takes the first place. There are two main reasons why this is so: firstly, initial public offering (IPO) has been discarded as an exit way for investors, and secondly, available capital is decreasing fast because investors are not able to comply with commitments to existing venture capital funds, and the funds that are available are frozen into existing investments which for various reasons can’t be left behind. The outcome of these is obvious, serious liquidity issues.
It has been established that 25% of the 370 public biotech companies in the United States possess less than six months worth of cash, and private companies are probably in worse shape, making it urgent to find money and credit lines in new ways. But, how?
1. When a firm requires short-term liquidity it should look for the help of existing private investors who already have gambled on a company’s future. Doing this during an economic crisis means existing investors will be very affected in terms of dilution of equity, thus, they will be very interested in giving bridge loans and other kinds of money contributions to offer managers the necessary time to get back on their feet and reposition their companies.
2. Small biotech companies could monetize some of their assets. Some specialized financial firms offer financing against future royalty payments or against existing or future revenues linked to specific clinical development programs. Some other firms that specialize in giving loans to pharmaceutical companies may help the small biotech firm access credit lines to buy equipment.
3. Reverse mergers have become very popular among biotech companies that need to better their liquidity. Biotech firms with strong pipelines are joining forces with publicly traded firms with lots of money reserves but fewer than desirable pipelines.
4. Biotech firms should go out and take advantage of the many funding opportunities available right now outside the commercial arena. Funding from the government or charity organizations will definitely reinforce their money capabilities as well as their credibility in the market, and as if this is not enough, it also does not dilute equity. Public funding has expanded importantly in fields like stem cell research, regenerative medicine, and cancer research, while non-profits are very supportive of areas like the therapeutic field, which is completely neglected by the big pharmaceutical companies. There are also the organizations dedicated to a specific disease that are very interested in funding promising research directed towards their field of concern.
The future prospects for the biotech industry are positive. The consumers are still spending money on its products, and the interest of big pharma companies in the new technologies developed by biotech firms is very strong. Life sciences consulting companies agree that the firms that make it through this crisis will enjoy less competition in the future, but first, they have to work their way through the storm, and it will only be achieved if they acknowledge the challenges and adjust their finances and strategy accordingly.
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