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Under the Cold Winter: Top 10 Living Methods for Small and Medium-sized Pharmaceutical Companies

 Last Update: 2022-11-04
 Source: Internet
 Author: User

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Since the beginning of this year, under the influence of the Fed's continuous interest rate hikes, the index XBI, representing small and medium-sized biopharmaceutical companies, fell by nearly 30% on top of the 20.
45% decline in 2021, and in just about a year, the attitude of the capital market towards the biopharmaceutical sector has changed from flocking after the epidemic to avoidance, and this year's IPO financing scale of pharmaceutical companies is the most true reflection:

Most small and medium-sized pharmaceutical companies are struggling in the capital winter, and survival has become the only choice for
some pharmaceutical companies.
Recently, biopharmaceutical companies have frequently appeared in the news of "restructuring" and "exploring" strategic alternatives”、“extending the cash runway”、“de-prioritizing certain R&D programs" and other survival-related words, specifically, there are three main types of ways for biopharmaceutical companies to survive the cold winter:

1.
Adjustment of R&D pipeline

R&D pipeline is the greatest value of innovative drug enterprises, in the cold winter period, innovative drug companies should do a good job of pipeline combing, and maximize
the value of the research pipeline.

Buy a quality pipeline

Compared with listed biopharmaceutical companies, unlisted biopharmaceutical companies have more difficulty in financing in the capital winter, and some listed biopharmaceutical companies take advantage of their financing advantages in the secondary market to find high-quality assets
in the primary market.

Financing advantages in the secondary market

For example, Solid, which treats Duchenne muscular dystrophy (DMD).
Biosciences (NASDAQ: SLDB) announced in September the acquisition of AavantiBio, a gene therapy company for the treatment of Friedreich's ataxia and rare cardiomyopathy, adding to its R&D pipeline
.

To complete the acquisition, Solid Biosciences announced a concurrent $75 million funding round that brought in Perceptive, RA Capital, and Bain Capital, Pura Vida and other well-known institutions, the combined company has $215 million, enough to support the company's
operation until 2025.

Spin-off of non-core pipelines and establishment of a new company

In the past two years, the number of biopharmaceutical companies using spin-off pipelines to set up new companies has gradually increased, the main purpose of which is to use the newly established companies to independently raise external financing and reduce the financing pressure of the parent company.

Pipeline spin-off to establish a new company

Spin-off of early-stage pipeline companies: Amicus (NASDAQ:FOLD) spun off to create gene therapy company CARITAS, Citius (NASDAQ:CTXR) spun off its immunotherapy I/ONTAK to form a new company, and Enveric Biosciences (NASDAQ:ENVB) announced the spin-off of two subsidiaries to focus on psychedelic therapy and cannabinoid therapy
.

Spin-off of companies that set up early-stage pipelines:

● Spin-off to set up mature pipeline: bluebird bio (NASDAQ: BLUE) spun off to form 2seventy bio(NASDAQ:TSVT)、Bausch Health (NYSE:BHC) spun off to form Scilex, a subsidiary of Bausch & Lomb (NYSE:BLCO), Sorrento (NASDAQ:SRNE).
Holding, etc
.

Spin-off of companies that set up mature pipelines:

● Spin-off of the platform company
.
Some pharmaceutical companies with strong R&D capabilities have spun off their technology platforms to form new companies, such as Ligand (NASDAQ:LGND) spinning off its antibody business discovery platform OmniAb, and Agenus (NASDAQ:AGEN) spinning off its iNKT cell therapy to form MiNK (NASDAQ:INKT).

Spin-off of the platform company
set up.

In the process of spinning off pipelines, many new subsidiaries completed independent listing at the same time as the spin-off, a few subsidiaries chose to merge with SPAC companies for listing, and some pharmaceutical companies jointly established new companies with professional biomedical investment institutions, such as Crinnetics (NASDAQ:CRNX) and Frazier Life Sciences co-founded a subsidiary, Radionetics Oncology
.

At the same time as the spin-off, the independent listing and the merger of the SPAC company were completed

Focus on the core pipeline

Faced with financing difficulties, many small and medium-sized biopharmaceutical companies prioritize existing pipelines according to technical advantages, R&D progress, market potential and other factors, tilting funds and resources towards pipelines for priority development, while non-priority R&D pipelines are suspended from R&D, licensed externally, or even sold to reduce the company's cash pressure
.

Non-priority R&D pipelines are suspended from R&D, licensed externally, or even sold

For example, BridgeBio, a biopharmaceutical company backed by KKR, a well-known Wall Street institution, as the largest shareholder Pharma (NASDAQ:BBIO), after selling one pipeline earlier this year, announced it was seeking outside partnerships for six other pipelines, along with NeuBase, Lipocine, Eterna and others
.

KKR, a well-known Wall Street institution, sold one pipeline and six other pipelines to seek external cooperation.

Pipeline under development for sale

Unlike biopharmaceutical companies that focus on core pipelines, biopharmaceutical companies that sell pipelines under research tend to sell their most valuable pipelines, and companies that generally take such measures often plan to sell shells or delist:

To sell the company's most valuable pipelines, the next step is often to sell them shell or delist:

● Catalyst Biosciences (NASDAQ:CBIO): In May this year, the company sold the research pipeline to Vertex for $60 million, and subsequently announced a dividend of $65 million to shareholders, which is arguably the most conscientious pharmaceutical company for shareholders.

The pharmaceutical company with the most conscience for shareholders;

IMARA (NASDAQ:IMRA): In September, the company announced an asset sale agreement with Cardurion to sell PDE9-related research and development projects for an upfront payment of $34.
75 million and potential milestone payments
of up to $60 million.

2.
Company-level measures

If the adjustment of the R&D pipeline can no longer improve the survival chances of the enterprise, then pharmaceutical companies need to take self-help measures
at the company level, such as mergers, mergers, privatizations, shell sales, and even bankruptcy.
However, once company-level measures are taken, pharmaceutical companies will most likely fall into a passive mode
in the subsequent development.

Merge shares

In the past two years, the biomedical sector has continued to slump, and the stock prices of most small and medium-sized pharmaceutical companies have entered a long-term downward trend, or some pharmaceutical companies have fallen below $1 due to research and development failures, resulting in stock prices falling below $1, which has induced the exchange's rules on $1 delisting.

In the absence of short-term benefits, some pharmaceutical companies with a stock price of less than $1 have begun a merger journey
.

Pharmaceutical companies such as Calithera and Unity (NASDAQ:UBX) have announced mergers, while some pharmaceutical companies have a merger ratio of more than 30:1, such as Brickell Biotech (NASDAQ:BBI) has a 45:1
equity ratio.

Some pharmaceutical companies have a merger ratio of more than 30:1, and a merger ratio of as high as 45:1
.

Business combinations

In the case that there is little room for adjustment of their own pipelines and difficulties in external financing, some biopharmaceutical companies adopt the method of huddling together to warm up and actively seek pharmaceutical companies willing to merge with them to survive the capital winter
together.

Huddle for warmth

Examples include Ayala (NASDAQ:AYLA) and Advaxis (OTCQX:ADXS), Syros (NASDAQ:SYRS) and Tyme (NASDAQ:TYME) merger cases, but both parties to the merger often have R&D or management deficiencies, and it is still difficult for the merged entity to obtain a high degree of recognition from
the capital market.

After the merger, it is still difficult for the entity to obtain a high degree of recognition from
the capital market.

privatization

Unlike the active acquisition of large pharmaceutical companies, the privatization valuation of privatized small and medium-sized pharmaceutical companies is low, generally difficult to exceed 100 million US dollars, and the privatized entities are mostly non-tier 1 Investment institutions, such as:

The privatization valuation of privatized small and medium-sized pharma companies is lower

Applied Genetic (NASDAQ:AGTC): In October, Syncona Limited announced the privatization of the company for $23.
5 million.

Stealth Bio (NASDAQ:MITO): In June, the company announced its acceptance of Morningside Venture's privatization proposal is valued at $27.
58 million
.

Sell shells

In the US capital market, the shell resources of listed companies are not of much value, but in the past two years, many pharmaceutical companies have still chosen reverse mergers (backdoor listings), mainly because:

● Listed companies have more cash to meet financing needs
.
Since March 2020, the Fed's easing policy has spawned a hot IPO market in the biopharmaceutical industry, with at least 10 pharmaceutical companies listed almost every month, and each pharmaceutical company has raised more than US$100 million in IPO financing, but in the ensuing interest rate hike cycle, most of these newly listed biopharmaceutical companies have been in a state of market value below cash on the books for a long time, and then become the main force
of backdoor listings.

Listed companies have more cash and can meet financing needs
.
Most of them have been in a state where the market value is lower than the cash on the books for a long time

● IPO, SPAC and other listing methods, under the existing market, not only have the shortcomings of cold market, small financing scale, but also have greater uncertainty, many IPO companies have suspended listing due to low valuation, financing amount and other issues, while many shareholders of SPAC companies will choose to redeem when voting
.

The market is deserted, and there is great uncertainty about the shortcomings of small financing scale

Take Gemini Therapeutics (NASDAQ:GMTX), for example, in February 2021, through a partnership with SPAC company FS Development (Nasdaq: FSDC) completed its merger and went public, raising $216 million, including Fidelity, OrbiMed, and Atlas , Boxer and other well-known institutions
.

Fidelity, Aobo, Atlas 、Boxer

But after the market, Gemini's road to research and development was extremely bumpy:

● In June 2021, the company released the 2a data for the treatment of AMD, and the stock price fell by 50%, and the company subsequently laid off 20% of its employees in October of the same year;

● In February of this year, the company's management changed, and it was announced that 80%
of the remaining employees would be laid off.

In August, Gemini announced its partnership with Disc Medicine is merging in the form of stock, and the combined company will be traded on
the NASDAQ Capital Market.
After the merger, Disc shareholders are expected to own approximately 72% of the company, with the remainder held by Gemini shareholders
.

In addition to Gemini, in the past two years, many companies such as Silverback and Second Sight have chosen to sell shells
.

Go belly up

In every capital market winter, there are companies that have fallen, and in the process of this round of capital tightening, there are also some pharmaceutical companies that eventually go bankrupt for various reasons, and PhaseBio (NASDAQ: PHAS) is one of
them.

PhaseBio has experienced ups and downs over the past two years:

● In November 2021, the company announced that Bentracimab was reversing the phase III experimental data of antiplatelet activity, and the stock price plummeted by nearly 40%;

● In September this year, SFJ, a partner Pharmaceuticals requires the company to transfer Bentracimab interest, and if the transfer is completed, the company will only be able to collect a mid-single-digit share of net sales after SFJ has a 300% return on investment, and the company's share price plunged nearly 80%
again.

After going through these difficulties, PhaseBio also filed for bankruptcy in October
.

3.
Comprehensive approach

In practice, many biopharmaceutical companies make comprehensive use of various methods, including R&D pipeline level adjustments and company-level measures, to win the frontline opportunities
to survive the cold winter.

In June, Yumanity (NASDAQ:YMTX) announced in June that it sold its drug YTX-7739 to Johnson & Johnson for $26 million, along with cancer immunotherapy Kineta will go public on a backdoor basis, and the company's collaboration with Merck to develop treatments for frontotemporal dementia (FTLD) and amyotrophic lateral sclerosis (ALS) will remain in the
combined company.

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