From Mid-Size Pharma to Angels: What Do Investors Say about Market Downturn?

By Joey Wong, Investor Research Analyst, Hong Kong BD, LSN

Digital RESI June invited active investors from different investment groups to share their thoughts on various topics related to investing and partnering with early-stage companies in the life science and healthcare industry. The newest panel, Beyond Big Pharma, featured five investors from different middle-market pharma companies. With the eye-watering down payments and the strong resources provided, large pharma companies are widely considered the holy grail for co-development and exit options for early-stage therapeutics companies. However, more absent from the public eye are the clinical-stage, middle-market pharmaceutical companies, which also present unique opportunities for startups to advance or bring their products to the market.

During the discussion, the panelists addressed the benefits of partnering with middle-market pharmas and how it differs from large pharmas. The first thing to consider is that while there are only a handful of large pharmas, there are many mid-size, revenue-generating pharmas out there looking for partnerships. Being open to mid-size pharma means to have a lot more options and opportunities. Additionally, mid-sized pharmas boast flexibility due to their smaller size, which makes many willing to tweak programs and leverage their own knowledge or technologies to make the product successful.

Independent of company size, the current economic downturn and the potential effect on deal-making is having an impact that reverberates across the entire industry. Most panelists agreed that market capitalization has been decreasing and valuation will be depressed. It is going to be more difficult for startups to raise money and large, up-front payment will be less. Some panelists noted that this means more opportunities for them, as they can now consider companies or pipelines that otherwise will be too expensive. This also allows them to be more creative in the deal structures. Some mid-pharmas can now partner with startups on their lead programs, that otherwise will not be available because of their valuation.

Meanwhile, in another corner of the investment ecosystem, angel investors shared a similar view on the current market downturn, but with a different takeaway. In the Angel Investors panel, similar to the mid-pharma investors, the panelists also agreed on the outlook, and therefore, investors are going to be more cautious, and companies will need to be more creative with fundings and open to some of the relatively unconventional options, like impact investors, family offices and micro-VCs, etc. However, some panelists believe this re-adjustment of the market is necessary, as valuations in life science and healthcare have been driven up over the past few years. Some even speculated that the economic downturn could discourage venture tourists who turned to the life science and healthcare space because of hype.

Angels and many recent funds still have the dry powder to invest, especially given they syndicate on deals often. Good companies with strong scientific foundations and solid products will still be funded, and they should see this as an opportunity for them to stand out. Panelists suggested that companies be more practical. Instead of “selling dreams,” they should be raising for an exit, focusing more on product development, revenue and exit strategy, which are things that investors look for when being more cautious with their investments.

Want to learn more? Watch these panels by clicking the buttons below. Additionally, RESI returns September 21-23 to Boston, MA. Sign up by July 29 to save $300 on registration and join the conversation with hundreds of life science investors and early-stage founders.