Runway Extension Key to Survival as Biopharma Faces Hard Times Ahead

Hard times are forcing biopharma companies to extend their runways as they try to eke out every cent of value from their capital. This goes beyond conserving cash and prioritizing programs, affecting how they consider their opportunities.

The approach companies take depends upon their size. “At smaller companies, success depends on being able to generate positive data and thus attract investors,” Lance Minor, principal and life sciences national co-leader at BDO, told BioSpace. “If tightening the belt means focusing resources on getting to that next clinical readout, that’s an appropriate approach.”

In contrast, he continued, “With mid-sized companies, prioritizing their pipeline to meet earnings projections or better manage cash probably has a lower overall impact on the company and its stock price.”

Although some companies are delaying launches, “Extending the runway doesn’t necessarily mean slowing down,” Minor stressed. Instead, it may mean shepherding resources by narrowing clinical trials to focus on fewer indications rather than targeting multiple disease types simultaneously.

Analysts say financing options are likely to remain constrained for the remainder of this year.

For the first half of 2022, deal flow was down regardless of the type of deal, according to J.P. Morgan’s Biopharma and Medtech Deals and Venture Outlook report.

“Q2 2022 saw continued decline in venture investment in biopharma from the records set in 2021,” Kathryn McDonough, co-head of healthcare for middle market banking & specialized industries at J.P. Morgan Commercial Banking, told BioSpace. “Total investment, however, was still at the highs seen in 2019.”

Expect an Uptick in Later-Stage Financing

She predicted an uptick in PIPEs and later-stage financing rounds later this year, reasoning that although investors have cash, they see a tight IPO market and poor returns in the public markets. There are also fewer advanced companies in which to invest, McDonough noted.

“The equity market will likely support existing public companies for catalyst-driven financings (based on) strong data readouts,” McDonough said. “We’ve already seen signs of a bounce back, but improvement will be driven by a stabilizing macro backdrop, positive clinical and regulatory updates and more M&A activity.”

For 2022, therefore, she reasoned, “High cash burn rates and a challenging equity market will likely result in continued out-licensing of major programs to attract larger deal terms despite shareholders’ and managements’ eagerness to retain core asset development in-house.”

In that environment, “Investors are shying from preclinical, undifferentiated platforms,” said Uciane Scarlett, Ph.D., principal at MPM, during the recent Biotech Gate Digital Partnering August 2022 panel discussion. Instead, “A program-central narrative is driving investors today. Investors of all sorts are focusing their interest on companies that are likely, at the least, to have first-in-human data sets within 12 months.”

Dawn Bell, global development head of strategic partnerships at Novartis, reiterated that point. “Platform deals are rare for us now. We’re looking for products,” she said during the panel.  

Consider Global Partners

Companies seeking deals, therefore, must be prepared to accept terms they aren’t expecting in order to mitigate risks. “If you can get cash to reach the next inflection point, do it, but if (the cash infusion) is just a patch, be careful that it doesn’t make it more difficult to attract partners later,” Philippe Lopes-Fernandes, EVP, CBO, Ispen, cautioned. “It may be better to work with global partners at less-than-ideal terms,” than to accept short-term cash that complicates future deal structures, he said.

Regional licensing rights are a good example. “There are a lot of biotech companies in China (wanting to partner) that have no track record,” Lopes-Fernandes said. “They can provide quick cash, but because they can be difficult to validate, they can cause a lot of headaches.”

Out-licensing Chinese rights (in particular) has other issues, too. “A lot of larger biopharmaceutical companies think of China as an emerging market and are less accepting of potential partners when rights to the China market are licensed away,” Lesley Stolz, regional VP, early innovation partnering at Johnson & Johnson Innovation, told the audience. That said, extending your runway by having the right partner -  even at the expense of regional rights – can be valuable, she noted.

Enhancing Value with AI/ML, Digital and Diagnostics

As companies seek to extend their runways, many are turning to AI and machine learning (ML) for the discovery and development phase. “Most companies have taken an element of computation and integrated it into their workflows,” Scarlett acknowledged. “We think of AI/ML as a way to enhance how we approach efficacy for molecules that are long, costly or have high attrition rates, such as small molecules. 

“From the investment standpoint,” she continued, “I am really trying to understand how to get a differentiated product using AI. Specifically, how is an AI-enabled company’s pipeline different from that of a traditional company’s?”

Scarlett said the modality is not transformational. Instead, deploying AI/ML during drug discovery reduces the attrition rates of complex molecules that are selected as potential leads, and saves costs incurred to reach that point, she noted.

Ultimately, AI and ML are tools, Bell pointed out. “The biggest cause of failure in drug discovery is that we are surprised by the biology. Computational tools can help with that, and help us (reach a conclusion) faster, but not necessarily generate more success.”

Other companies are interested in digital therapeutics and diagnostics as a way to enhance value. Often, this is intended to improve compliance or outcomes for non-digital therapeutics.

Although digital options appear to be a relatively fast and easy way to increase value and revenue for products, the challenges are formidable. Bell cited difficulties in persuading physicians to prescribe digital apps, patients to use them and payers to reimburse them. Many apps, for instance, have no reimbursement codes.

“For pharma, digital solutions must be very asset-centric,” Lopes-Fernandes stressed. “Digital solutions are coming, but they’re still – mainly – in the future.”

Platforms or Single Products?

Panelists also addressed the relative merits of platforms versus single products – a debate that has ebbed and flowed for decades. A few years ago, investors favored platforms, citing the opportunity for “multiple shots on goal.” Now, investors seem to favor single-product companies.

Platform companies have challenges with resource allocation. Resources must be allocated both to building the platform and to progressing lead compounds to ensure they reach critical inflection points. “You must not spread the capital too thinly,” Bell cautioned. “It’s easy for founders and CEOs to get ahead of their skis in terms of valuation. Therefore, think about dynamically allocating capital to reach inflection points.”

To successfully extend their runways, regardless of whether they are formed around single assets or platform technologies, companies must be very strategic in terms of using the asset to build value. They also must be flexible and evolve with the times. Thriving – or surviving – is a combination of having savvy leaders, differentiated science and luck. As Stolz said, “You have to be a pathological optimist to stay in this industry.”