LSX Inv€$tival Showcase round-up

Views & Analysis

On 14th November, investors and life science & healthcare executives descended on London’s famed Old Billingsgate building to attend LSX’s Inv€$tival Showcase, part of Europe’s biggest dedicated healthcare investment week.

Now in its seventh year, the Showcase gives life science and healthcare corporates the opportunity to pitch, profile, and connect with investors and partners, alongside masterclasses and dedicated 1:1 partnering. The main floor hosted six stages: Start-Up, Biotech Growth (pre-Series B), Biotech Late-Growth (post-Series B), Medtech/Healthtech, and Women’s Health.

To accommodate the sheer wealth of voices and pitches throughout the day, LSX employed a clever tactic – headsets tuned into each stage. Attendees could simply don a pair of over-ear headphones conveniently hung over the back of each seat and immerse themselves in the stories and discussions unfolding on stage. This proved highly beneficial for those pitching products, mechanisms of action, and companies to investors, allowing them to focus on their presentations, instead of competing to cut through the chatter rising from the floor.

How healthcare innovators are weathering market conditions

Guests were ushered into the main hall, where LSX’s SVP and head of production, Josh Dance, took to the stage to kick off proceedings. After thanking attendees for coming to the event and introducing the format of the Inv€$tival Showcase, Dance handed the microphone over to Alexandra Zemp and Joseph Lydon from McKinsey & Company for the opening keynote address. The subject: how health innovators are weathering market conditions.

McKinsey’s presentation was broken down into three key themes, top-line facts and figures, shifts in industry dynamics, and horizon outlook and signals to watch. To set the scene for today’s investment landscape, Zemp and Lydon began by addressing the unusual surge of funding that took place in 2021. They both stressed this was an outlier for investment across biotech, medtech, and healthtech, with investors competing to invest in the best biotechs and little, if any, time to conduct due diligence. As the dust settled and reality set in, it quickly became clear that this may not have been the best approach for investors, and consequently, the ramifications of less-than-ideal investment decisions are impacting venture capital deals today.

However, while it might feel like the recent downturn is lasting longer than expected, Lydon stressed that the current situation is aligned with the average peak-to-trough time of 6-10 months.

Moreover, both Zemp and Lydon emphasised that, while investors are being more cautious about deploying capital, there is still availability and willingness to invest. Series A and B funding remains strong, looking like a return to 2020 levels; however, when it comes to Series C and later rounds, funding appears to be tapering off.

Overall, McKinsey’s presentation painted a picture of a more cautious investment landscape, with power shifting back into the hands of investors. Cash preservation is a particular focal point amid macroeconomic downturn and the fallout from 2021, with biotechs now focused on streamlining operations and value creation. That said, Zemp and Lydon concluded that there is still excitement about what the sector has to offer.

Investment, financing, and deal-making in healthcare in 2023

Next up to the stage to discuss how macro-economic and geopolitical issues and post-pandemic recovery dynamics are evolving was a multi-stakeholder panel comprised of: Gil Bar-Nahum, managing director for Jefferies; Tim Haines, managing partner for Abingworth; Andrew Levin, partner and managing director for RA Capital Management; and wasmoderated by Michael Rice, founding partner for LifeSci Advisors.

Describing the current macro environment, Levin remarked that 2022 feels similar to the long grind witnessed in 2010, with budgets stretched in response to financial uncertainty. What we saw in 2021 was probably an overemphasis on biotech and enthusiasm for what was true innovation, but there was a lot of buy-in that wasn’t usual, he explained.

For Bar-Nahum, it is better to enter the market with an oversubscribed product in order to reduce the risk of investors suddenly pulling out. This, he noted, has been a particular challenge following the 2021 rush, as initial investors are being relied on when later funding rounds do not bring in new investors. “In these markets, we have launched an IPO and seen zero new investments,” he said.

Building on this, Haines discourages companies from pursuing the same MoAs already being explored by other companies. Taking risks is important here, he said.

The panel then moved into discussions over the potential of SPACs (special purpose acquisition companies) in the biotech space. Bar-Nahum voiced scepticism over this approach, as he remarked that there is a risk that SPAC owners will simply pull funding, a sentiment that was echoed by Levin. However, all agreed that, while there is a risk, a lot of cash has been raised by public companies and that smart boards and management teams should be looking at options to merge with other groups.

Investing in the future of the European life sciences

Back in the main hall, we headed over to the Start-Up Stage for a panel discussion hosted by pharma giant Eli Lilly. Making up this panel were: Marion Bernard, chief investment officer for Northern Gritstone; Anne Horgan, partner for Cambridge Innovation Capital; Owen Smith, partner for 4BIO Capital; and moderator Laura Lane VP Venture Science, Lilly New Ventures for Eli Lilly & Company.

Echoing statements made throughout the day, the panel opened by discussing the market disruption of 2021, which Horgan remarked “set standards to abnormal levels”. Despite this, Smith noted, basic science has flourished. Looking forward, he stated that he is anticipating a return to discipline in bioscience. Currently, companies that should not have gone public in 2021 are dying, he said, disrupting the market, but once this fades, the market will stabilise. Following this, disciplined investing will bring the best innovations to the forefront, he said.

Turning the discussion to new and different funding approaches, Hogan highlighted that differentiating funds is as important as asking companies to demonstrate how their product differs from competitors during pitches. It is about finding the right people, with the right skills, to maximise the success of a venture.

Smith shared this approach, remarking that 4BIO Capital takes a collaborative approach to invest, working closely with the founders and companies to develop a shared vision for growth. Founders are also becoming more knowledgeable and experienced, said Bernard, so it is important to get to know founders early on and ensure that difficult questions are being asked of both parties.

Investment within digital health and healthtech

Switching tracks, our next panel for the day was set on the Medtech and Healthtech stage. Led by moderator Tina Tan, executive editor for FirstWord, the panel included: Vijay Barathan, partner for Optum Ventures; Catherine Boule, managing partner for Karista; Rabab Nasrallah, investment professional with Earlybird Venture Capital; and Guillem Masferrer, investment director for Asabys Partners.

Tan opened by noting that the landscape in 2022 has been a comedown for health tech investing. But she asked what had triggered the comedown in investing?  For Barathan and Boule, the answer lies somewhere in between ongoing macroeconomic issues and investors pulling out in early 2022. Barathan remarked that the landscape this year is very different to 2021, as private equity investors have more time to consider investments.

Masferrer saw no big difference between the downturn seen in health tech and other areas for venture capitalists. The importance of investing in health tech is still there, he said, and there can be very profitable investments in health innovation. There is a caveat to this appetite for investment, as highlighted by Boule, which is that private equity investors are currently deciding to make new deals without a great deal of visibility as, following an intense period of disruption, we don’t know what’s coming in the next few months.

To illustrate the stark contrast between Q1 and Q4 2022, Barathan recalled a deal from February, where he met a company on Wednesday and closed a deal with them on Friday. “Things moved that fast,” he explained. Now, he noted, the syndication process is longer. He said that stakeholders have different appetites and processes, so they are much more cautious.

While there is indeed caution from investors, Nasrallah noted that innovation has not halted. However, she spotlighted one notable barrier that could cause headaches moving forward. Series A companies are not understanding the change in valuation from 2021 to 2022, as this information appears slow to trickle from private to public. Investors are unlikely to be willing to accept the risk of 2021 valuations, she said, noting that Series A companies need to take time to understand and digest the new valuation rules before approaching VCs with valuations from 2021.

For Barathan, another element guiding decision-making is the experience gained through the VCs current portfolio. We are learning what works and what doesn’t work, he explained, offering software-only vs software with wraparound as a notable example of areas where investors may be recalibrating what stage of a company they are willing to engage with. Masferrer agreed, adding that, while you can never say never, real clinical evidence is needed to attract VCs.

Commercialisation through externalisation

Last up on the Biotech Late-Growth Stage was Madeleine Armstrong, news editor Evaluate Vantage, leading a discussion on creating new opportunities through strategic partnerships. Joining her onstage were Dominique Bridon CEO of Diaccurate, Matthias Müllenbeck SVP, head global business development & alliance management Merck KGaA, and Catherine Pickering CEO iOnctura.

The panel began by addressing the difficulties companies can encounter in creating new out-licensing agreements and spinning out assets to form new companies. Primarily, it can be an uphill battle to convince investors that a smaller organisation can do something significant with an asset that a large pharma company has deprioritised.

For Müllenbeck, this is an opportunity. He explained that Merck launched its strategic corporate venture capital arm to add assets to the company, but it took some time for investors to move past initial scepticism. But he noted getting the right people on the right path to success allows companies to create a more impactful story to put to investors.

There is no set way of working with a pharma company, as Bridon illustrated when he discussed Diaccurate’s early efforts in advancing the clinical development of the PAM inhibitor DIACC3010, which the company acquired from Merck. After a few months, the company came across a major development, but Bridon said that the company was hesitant to share the news with the team at Merck as they had chosen not to explore the asset further. But, to their surprise, he remarked that the team were supportive of the achievement.

He said this is a very different attitude to other asset companies, noting one example where a company demanded $5 million before sharing any data about the asset in question.

It’s a bit of a balance, noted Pickering. When approaching pharma companies to license molecules or MoAs, you have to share the exciting target you have identified, but not so much that the company gets spooked into clinging onto that asset.