Cash-Burning Biotechs Turn to Debt to Help Chase Covid Cures

Biotech companies have taken center stage during the pandemic of 2020. Between the many vaccine initiatives and even more numerous investments in testing and new Covid-19 therapies, money is flooding into the sector at a record rate. Biotechs raised more than $6 billion in initial public offerings in just the first half of the year. And the pace has only accelerated through the summer, with the total now easily surpassing the record $6.5 billion raised in all of 2018, the previous biggest year for biotech IPOs.

And as the saying in venture goes, “when equity goes, debt may follow.” At a time when biotechs are under pressure to come up with new solutions yesterday, some are burning through their cash faster than ever. So, it’s no surprise that our debt finance consulting group is having an extremely busy summer. This month’s white paper, State of the Market: Debt Financing for Clinical Stage, Publicly Traded Life Sciences Companies, provides a clear guide to this increasingly complex marketplace.

Biotechs that are in clinical trials need to continue spending heavily to position for the expected spike in revenues once their therapies are approved. To extend their cash runways without taking on more dilutive equity, they can turn to a robust debt market. There are plenty of lenders ready to step up to the plate, but they come in many shapes and sizes. Finding the right fit for your unique situation can be a challenge.

In this environment, Capital Advisors Group’s long-term focus on emerging, early-stage biotech, life-sciences, and medical technology companies has served us well. Leaning on our nearly two decades of experience advising borrowers, we know which lenders to approach and what terms to negotiate.

But first, it’s important for borrowers to know generally what types of loans are most appropriate. And the kind of loan you apply for may depend on the status of your business. For instance, bank debt and venture debt may be appropriate for businesses in their pre-clinical, development, or late-clinical stages, whereas structured finance, mezzanine, or revenue-interest financing may be more appropriate for companies approaching their commercial rollouts.

Our white paper walks you through the ins and outs of each solution, including advice on how to evaluate your unique needs, how to find an appropriate lender, and how to consider structuring deals. Among other things, we recommend identifying no less than six lenders who might be suitable for your deal and understanding the typical structures they may be able to offer. Interview them, get to know them, and research their reputations in the market. Like other relationship businesses, the goal should be a productive, long-term partnership.

The pandemic has challenged all of us to embrace creative solutions and step up to new ways of doing business. Biotechs and life-sciences companies chasing Covid-19 therapies are making essential contributions to an eventual solution to the crisis, and debt financing may help many get there faster. If you’re among them, we’re here to help.

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Best Regards,

Ben Campbell
CEO