After peaking in 2021, biotechnology and biopharmaceutical venture funding, stock valuations, and initial public offerings (IPOs) took a dramatic downturn.
According to an IPO tracker maintained by Biopharma Dive, a meager 38 life sciences companies went public in 2022 and 2023. This was the slowest IPO two-year period in more than a decade. In comparison, data from Silicon Valley Bank shows 179 life science IPOs across 2020 and 2021.
Amidst the turbulence of the last three years, biopharma and biotech companies have turned to private capital. And they’re finding success— U.S.-based life sciences companies raised $5.9 billion in the first quarter of 2024 alone.
Today’s investors, however, have less risk tolerance than those who financed the pandemic-era boom.
In this article, we’ll hear from leading industry experts on how founders can increase their chances of securing clinical research funding in today’s market.
This article summarizes portions of the studioID BioPharma Dive report sponsored by Medrio, “Taking the Financial Pulse on BioPharma and Biotech.”
A State of Flux in Venture Funding for Research
The venture capital (VC) funding landscape remains in flux. Furthermore, achieving a successful IPO continues to be more difficult than during the boom of 2021.
During that heyday, several life sciences firms introduced an IPO before even entering into clinical trials. For example, a study of 60 biotech IPOs that occurred in the first half of 2021 found that only 70% of companies “had at least one clinical trial initiated at the time of IPO.”
However, in today’s economic climate, companies need to focus more on robust data and team maturity.
Despite scientific breakthroughs and economic upheavals, much of what VCs seek remains the same: a therapeutic that can be successfully commercialized.
Investors want to be confident of a significant return on their initial investment. To achieve this, VCs want data that confirms both product and market fit, plus the right team driving their investment.
The Need for Collecting Robust Data
“Venture capital firms are being more cautious right now than they were even a couple of years ago,” says Anton Xavier, Director of Startup Banking for Life Sciences at Silicon Valley Bank.
“What this really means is that they’re doing more due diligence, so they want more data. Data is critical because it can convey scientific value, clinical value, and value to patients,” continues Anton.
VCs want detailed evidence to evaluate the product or market fit of a new technology or therapeutic. Without this data, stakeholders cannot understand a therapeutic’s potential.
A good data strategy can make it easier for biopharma and biotech companies to present preclinical or clinical evidence to prospective funders.
“Biopharma firms today have to think very carefully about their data strategies,” Nicole Latimer, CEO of Medrio, explains.
“The data that clinical trials generate will ultimately be just as important of an asset to the company as the therapy itself. Founders need to be as passionate about and protective of their data as they are about the science,” says Nicole.
Data is also vital for companies to show that they’re hitting milestones related to product development, growth, and regulatory approval. For example, if a biotech company says they’re leveraging AI to move faster, do they have the data to prove it?
The Importance of Building the Right Team
No one can be certain about a product’s potential for success before it enters clinical trials. If data is not yet available, investors must primarily base funding decisions on their impressions of the people behind the company’s therapy, platform, or idea.
Investors are looking for teams with both scientific and business prowess. Companies need to demonstrate they have both the science and technology skills along with the ones required to scale a company.
“Having a team with real-world experience in getting things into the clinic is incredibly important,” says Xavier. “It can be difficult to find and recruit professionals with this kind of experience, but at the moment, larger companies have engaged in layoffs across several areas. This presents an opportunity for startups to recruit these experts…”
Scientific research is a trial-and-error process, so a team needs to have flexibility and problem-solving skills.
“There’s an investor I worked with years ago who always said that a poor team can ruin a great idea, and a great team can salvage a poor idea,” says Spencer Greene, Managing Partner at TSVC. “My experiences have proven him right.”
Securing Funding for Future Clinical Research
“Investment is not a one-and-done,” says Xavier. “It’s an extended process. Over the course of years, the company’s leaders will need to build and maintain their relationship with funders. They’ll need to demonstrate that they have a robust and realistic plan for developing their asset, and then give ongoing updates on how they’re executing that plan.”
Regardless of what lies ahead, biopharma and biotech founders need to think carefully about their data strategy. Companies who prioritize collecting robust data, along with building a strong team, are more likely to get the nod of approval from VC funders.
Read the full BioPharma Dive playbook sponsored by Medrio, “Taking the Financial Pulse on BioPharma and Biotech.”