Written by Shailesh Maingi, CEO & Founder, Kineticos
Kineticos recently published the results of the Q2 2016 Biopharma CEO Confidence Index. Our forward looking study focuses on six separate areas:
- Capital Markets
- Deal Landscape
- Clinical Development
- Regulatory Affairs
- Business Model and Workforce
Before I dive into the data, our Q2 study marks a milestone for us at Kineticos. We’ve now completed one full year of research. My thanks to our partners Ipsos and Demy-Colton and all the biopharma CEOs who have participated. Our data is only as good as the CEOs who take the time to respond! We thank you for your continued participation1 and welcome any feedback you may have regarding our methodology and findings.
Shifting focus towards the data analysis, the Q2 results are quite interesting. Biopharma CEOs have 2 primary sources to fund clinical programs: capital markets2 and deal making. Confidence in both of these areas continues to decline since our inaugural study in Q3 2015.
Most recently, only 24% of CEOs surveyed were very confident in their ability raise funds in the capital markets. In Q3 2015, 53% of biopharma CEOs were very confident. Recall that the biotech sell-off began in earnest in September last year3.
As I discussed in an earlier article, biopharma CEOs have pivoted their focus to company specific events. In Q3 2015, at the peak of biopharma valuations, access to capital markets was the leading driver of confidence in raising capital. This was cited by 18% of the respondents. In Q1 2016, confidence in access to capital markets was halved to 9%. This was further reduced to 6% in Q2 2016.
At the same time, the primary source of confidence in capital markets is a micro, company specific factor: discussion with potential investors. This factor has doubled as a source of confidence from 16% in Q3 2015 to 31% in our most recent study.
What we can gather from our research is that biopharma CEOs are switching tactics. They’re moving away from capital markets for funding to licensing deals with larger biopharma. But the news of the Deal Landscape is not encouraging.
Our Q2 results indicate that confidence in the Deal Landscape continues to decline. In Q2 2016, 35% of CEOs were very confident compared to 82% in Q3 2015. This precipitous decline shows no sign of stabilizing.
Not surprisingly then, the biggest risk for biopharma companies right now is lack of funding. In Q3 2015, funding and clinical trial results were each mentioned by about a third of CEOs as the biggest risks. In our most recent study, funding risk has jumped to 57%.
In the span of 4 quarters, access to capital markets has gone from the primary source of confidence to being the single largest risk. That’s quite a turnaround. Of course, this deterioration is not too surprising considering the upheaval in the biotech sector.
So what’s a biotech to do? For one, the chances of going public are slim right now. According to Renaissance Capital, 12 biotechs went public in Q1 and only 7 in Q2 (most of these are underwater).4 For another, terms for development deals are tightening. Smart CEOs are working to take all licensing deals across the goal line. Our data indicates that CEOs are even less confident in the coming 18 months. So the terms today might be better than what the near future may hold.
1 Our Q3 study has been launched. If you are a CEO of a biopharma company and have not received an email invite to participate, please reach out to email@example.com so that he can add you to the distribution list
2 For simplicity, I’m combining discussion of both public and private markets. Our study breaks these into appropriate components.
3 The markets stabilized somewhat in Q4 but it was not until Q1 (February 9 to be exact) that biopharma valuations hit yearly lows. As of August 2016, market valuations are about the same level as the initial low last September.
4 July and August are historically slow for IPOs but the rest of the year looks more promising.
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Shailesh Maingi is the Founder and CEO of Kineticos and has a passion for the role R&D plays in improving healthcare outcomes. Mr. Maingi is also an adjunct professor at the Kenan Flagler School of Business at the University of North Carolina and serves on the board of directors for a number of biopharmaceutical, diagnostic and contract manufacturing companies.