How Biotech CEOs Navigate the Funding Winter: Strategies for Survival and Growth

In late October, at a spacious roadshow venue, a company that had already secured Series C funding took the stage to present. Only a dozen or so attendees were scattered across the audience seats. As most investment firms were already familiar with the company, its representative gave a brief overview of the project and completed the presentation in just five minutes.

A similar scenario also unfolded at another regionally renowned startup competition this year. For some investment firms, more than half of the participating projects were already well-known in the market, prompting them to assign only investment managers as judges.

Investment firms are in no rush to pull the trigger, and fundraising timelines continue to stretch. Meanwhile, many Biotech CEOs, both online and offline—whether through financial advisory (FA) firms or roadshows,Meeting with investors from morning till night, one can connect with over 100 institutions in just over two months., the progress of investment institutions has been very slow,“Securing financing alone took an additional eight months,” shared a CEO in the industry.

“Raising enough capital to last through the end of next year” reflects the current survival reality for many biotech companies. Consequently, CEOs are under pressure to accelerate clinical milestones to convince investors to commit funding; at the same time, adhering to the principle of not putting all their eggs in one basket, they do not rely solely on financing to weather the downturn.A major partnership or support from local governments has become particularly valuable at this time.

CEOs have the most direct sense of the “winter chill.” As helmsmen, they stand at the forefront of the storm. How to survive the downturn? VBInsight interviewed nearly 20 CEOs and investors. Their stories reveal confusion and uncertainty, but also offer sincere advice and practical solutions that may provide inspiration for industry practitioners.

Another biotech CEO cited an example to us: to achieve the same fundraising target, a CEO might need to meet with 20 to 30 VC firms in a favorable market, whereas now that number has increased to 50 or even 100.

Consequently, attending endless meetings and engaging with various venture capital firms to present company projects and development strategies have become the norm for many CEOs during the winter downturn, representing their primary focus.

At public events such as industry conferences, they do not shy away from discussing these matters. At an industry conference held in late September, several well-known investors in the sector were asked,What advice do you have for companies that are currently raising funds or planning to do so? An investor responded,“First, founders must focus on doing their own jobs well and running their companies effectively. Second, if you must raise capital, wait if possible; do not rush into fundraising. Third, if fundraising is unavoidable, remain flexible and avoid fixating on valuation. Fourth, if these measures prove unworkable, adapt to the prevailing circumstances, such as pursuing a merger with another company.”

Plan your budget wisely and manage cash flow effectively; when financing becomes unavoidable, avoid fixating on valuation—prioritize securing as much capital as possible, treating valuation as a secondary concern; finally, assess the situation and remain open to strategic options such as mergers and acquisitions.

This is the advice most investors give to biotech CEOs.

At a startup competition, a company publicly unveiled its AI technology platform and drug development progress for the first time, seeking only RMB 20 million in funding. For the highly capital-intensive pharmaceutical industry, this is not a substantial amount. After thoroughly assessing the market downturn and the company’s situation, the CEO did not expect the company to rely solely on financing for survival, thus lowering his funding expectation to RMB 20 million.

They seek partners not merely to secure funding through transactions, but rather to rapidly penetrate commercial markets via collaborative networks and achieve independent financial sustainability. This signifies a new shift in the daily priorities of some CEOs—It is necessary not only to accelerate financing and lower expectations, but also to devote more effort to seeking business development (BD) partnerships.

Some even more astute biotech companies, such as InSilico Medicine, which has just officially announced its collaboration with Sanofi, completed this strategic shift in focus long ago. After eight to nine months of negotiations, it successfully signed a major deal with a large foreign pharmaceutical company, with a total potential value of up to $1.2 billion. The agreement includes an upfront payment and target discovery fees totaling no more than $21.5 million.

A substantial down payment can alleviate urgent financial pressures.According to statistics from Meibo Capital, in the first half of 2022 compared with the same period in 2021, the growth rate of domestic licensing collaborations was 44.8%, with the total amount jumping from $439 million to $635.7 million; the growth rate of cross-border License-out transactions was 9.2%, and the total upfront payments increased by 38% year-on-year.

Some CEOs are also attempting to find breakthroughs within local governments’ policies for introducing innovative enterprises.

The enthusiasm of CEOs for government departments was most visibly evident at the aforementioned startup competition. Some CEOs who had already completed their roadshows were still actively seeking contact information for judges from one of the event’s organizers—a municipal government of a prefecture-level city. “Relying on financing to survive the winter is largely a matter of luck. If we can establish connections with the government and integrate into local governmental industrial clusters, our company will receive more sustained support in its future development,” revealed a staff member from a biotech company.

The winter of the capital market will weed out some companies while propelling others to success. Whether a company emerges as a “winner” or is eliminated as a “loser,” CEOs play a critically pivotal role.

One prevailing reality is that many Chinese biotech companies are founded by scientists, who often assume the role of CEO directly.

During periods of active capital markets, a CEO who is primarily a scientist may be able to cope. However, as the capital market enters a cooling-off phase and not all projects can secure funding, the comprehensive capabilities of the CEO are put to a greater test. A downturn in the capital market may make this challenge more apparent. Out of their commitment to scientific research, scientists often find it difficult to proactively sell certain technologies and pipelines, or to accept acquisition by other companies to maintain cash flow. Yet, under the pressure of ensuring corporate survival, they must seriously consider such options.

Companies need to prioritize commercially driven product development; even if it does not immediately generate significant cash flow, it can at least demonstrate the company’s commercialization potential to the market, thereby facilitating the securing of subsequent funding.

Whether a company can successfully weather the winter largely tests the CEO’s ability to adjust strategic direction and consolidate resources.

For instance, the CEO must rapidly assess the potential and progress of the drug pipeline to determine which assets should be prioritized, which should be put on hold, or which should be divested to generate capital. Regarding domestic and international policies and regulatory frameworks, the CEO should be adept at detecting emerging trends and quickly assimilating complex regulatory requirements, thereby enhancing capital efficiency in clinical development and product approvals.

On the other hand, how can a company secure financing from cautious investors? How can it establish collaborations with other companies to pool resources and advance projects, thereby joining forces to weather the economic downturn? In such circumstances, having a CEO capable of consolidating resources can be an urgent boon to the company.

It can be said that,When companies face difficulties, CEOs are required to be experts in financing and investment, clinical affairs, business development (BD), and even government relations., It is unrealistic to transform into an all-around CEO overnight, but CEOs can compensate for capability gaps through a strong team.

The most critical skill is to maintain communication and contact with investors.

Investors often bring complementary skills, experience, and an expandable resource network to CEOs, sometimes playing a positive role in talent acquisition, team development, partnerships, and external communications, which is particularly important for first-time CEOs.

Additionally, investors have offered constructive suggestions regarding CEOs’ decision-making capabilities and resolve. “Some CEOs lack clarity in their thinking and fail to align their viewpoints with market trends, which is clearly insufficient. However, there are also CEOs who proactively engage with investors and integrate resources through various other means, thereby providing greater assurance for their companies’ current development across all areas.”

Another well-known investor offered the advice, “It is crucial to clearly define the narrative logic of your company’s growth story, enabling potential investor partners to grasp it concisely; this is extremely important.“Especially given the currently challenging market conditions, it is essential to execute every task with exceptional precision.”

CEOs may not need to be experienced in every matter, but they must have a sufficient understanding of their surrounding environment to make critical decisions during tough times and become individuals capable of overseeing the big picture.

Some CEOs have come to realize that “the winter in the biopharmaceutical capital market is, in fact, a normal phase of the industry’s life cycle and an inevitable stage in the growth journey of every startup.” For CEOs, this capital market downturn also serves as a catalyst for transformation.

How to Successfully Transition from a Biomedical Scientist to a Startup CEO: A Critical Guide for Startups and Scientist-Founders

In The Billion-Dollar Molecule, Joshua Boger also went through such a period. During the three years from Vertex Pharmaceuticals’ founding in 1989 to its IPO in 1991, Boger faced a bleak market and similar challenges to corporate survival, urgently seeking external partnerships and financing—a situation largely akin to that confronting many CEOs of startup biopharmaceutical companies in China today.

The tension between scientific research and commercialization has plagued the Vertex team since its inception, ultimately converging on CEO Joshua Boger alone. Also a scientist by training, Boger hopes to guide the company’s research pace with scientific passion and shield his research team from commercial influences. At the same time, he must view the company’s development through a commercial lens, adjust research directions accordingly, and effectively communicate Vertex’s story to investors and the market. Boger’s experience may offer some insights for CEOs.

“In the U.S., many CEOs take their companies public, then take them private again to continue leading them as professional managers driving biotech development. However, this is rare in China, where most CEOs lack sufficient experience in strategic oversight and crisis management,” said an investor.

This may be the first time in their careers that they have directly faced a market crisis, but periods of market downturn are also when value emerges. CEOs who can truly “navigate the cycle” will gain insight into the underlying logic of this winter, refining themselves while benefiting the future development of the industry.