Strong science is the starting point for any life science company. Securing a buyer takes more than that.
Following our recent look at what’s changing in the life science exit market, Innovestor Life Science partners Milla Koistinaho and Pekka Simula turn to what it means in practice for founders.
So, what does it take to stand out to buyers today – and how should life science companies be building towards a potential exit?
Getting on the buyer’s radar
According to Koistinaho, buyers are increasingly selective about where an asset fits within their existing therapeutic areas, drug modality capabilities and commercial channels. The strongest position, Simula points out, is still clinical proof of concept in a well-designed trial, in an area of strategic importance to the buyer. In two words: De-risked assets.
Earlier-stage companies can still do a lot. Storytelling matters even when selling a molecule; the story just needs a rock-solid scientific basis. Pack your differentiated science with indirect clinical validation (such as a genetic link to disease), a robust preclinical data package (in models endorsed by the buyer), a convincing development plan (don’t forget about CMC and target engagement biomarkers!) and a strong team (with what it takes to bring the asset through clinical proof of concept), to give yourself a fair chance at earlier partnering.
As Simula puts it, “You will need very compelling scientific data.” Listen to the buyers when designing the preclinical studies; make sure the drug’s mechanism of action is well understood. For platform technologies, validate the platform by a strong lead molecule.
The pool of potential buyers is changing, too. Simula highlights the growing role of mid-sized pharma companies looking for growth through external innovation. With expensive Phase 3 assets out of their reach, they are willing to engage earlier and accept more development risk.
“Dating” your way to a deal
Building buyer relationships needs to start well before a potential transaction. Buyers want time to follow the company, assess the data as it develops and build conviction.
“The buyers won’t come after you, even with great data published in a leading scientific journal. It’s a full-time job for a biotech to look for, and keep up the dialogue with, the potential partners,” Simula says.
Koistinaho describes the process as “dating” with strategic players. Successful early-stage companies identify potential buyers and start building those relationships years before a potential transaction, actively seeking feedback on their development plans along the way. A random annual catch-up at BIO isn’t enough. Build relationships with relevant people across all relevant teams such as Therapeutic Area, R&D, and Search & Evaluation. Find the internal champions you need to convince to win a deal. After all, this is people’s business.
And, importantly, do this with several potential partners. Pharma priorities can change quickly. A core asset in a pharma company’s own portfolio can fail almost overnight, changing what the company is looking for externally. On the other hand, partnering teams are experienced; if they realize they are the only bidder for your molecule, time is on their side. Smart early-stage biotechs maintain dialogues with several potential partners while also keeping fundraising options open.
Think beyond the next round
The approach to financing is changing as well. Rather than raising smaller rounds to reach the next value inflection point, Koistinaho sees a shift towards building strong investor syndicates capable of supporting companies through multiple development stages and, ultimately, to an exit.
Simula adds that funding rounds are taking longer to close and investors have become increasingly conscious of financing risk. Even in promising companies, investors may prefer to share that risk through a strong syndicate rather than take a larger stake alone.
That matters particularly in the Nordics. The region has many of the ingredients needed to build globally competitive life science companies: world-class science, trusted healthcare systems, strong research infrastructure, unique health data and growing expertise in AI and data science. The challenge, Koistinaho says, is turning those strengths into companies that have the capital to keep growing.
“In many cases, what limits growth is not scientific quality or lack of ideas but the availability of smart long-term capital capable of supporting companies through multiple clinical milestones.”
Planning beyond the next funding round is essential. Companies need realistic funding plans and investors with the capacity to support them as they progress.
The deal is in the details
Buyers are also managing risk through deal structure. A large share of the deal value may be tied to future development, regulatory, or commercial milestones. The headline value is often ‘biobucks’, as the industry sneers, and only tells a part of the story.
“Compared to the zero-interest-rate times, Big Pharma are naturally pushing for more back-loaded deals. Biotechs – and their investors – need all possible leverage to push back,” Simula says.
Founders and investors need to look closely at what arrives upfront, what milestones must be reached and how the risk is divided between buyer and seller.
Trends change. The fundamentals don’t.
New technologies and therapeutic areas are creating fresh opportunities. As some examples, Simula highlights the growing use of AI across R&D and other areas, as well as renewed interest in women’s health.
Koistinaho is particularly encouraged by the return of neuroscience. Better biomarkers, imaging, genetics, digital endpoints and a deeper understanding of disease biology are making a field once considered particularly risky more investable again.
But while areas of interest change, the fundamentals of building towards an exit remain much the same: strong evidence, a clear fit with potential buyers, relationships built well before a transaction, and enough capital for optionality.
The strong present deal market creates opportunities. Companies just need to put themselves in a position to capture them.
Behind the insights
Milla Koistinaho (PhD in Biotechnology and Adjunct Professor in Neurobiology) has over 20 years of experience in commercializing ground-breaking biomedical inventions. After postgraduate training at Eli Lilly and Company in the USA, Milla has co-founded 3 venture backed biotechs and in executive roles managed fundraising, business development and licensing activities. She also has a strong track record in intellectual property rights -being an inventor in tens of patens herself, she has also been responsible for commercializing the wide IP portfolio of University of Helsinki and spinning out science based start-ups. Milla serves as a Board member in many Innovestor Life Science Fund’s therapeutics portfolio companies.
Pekka Simula has spent over 25 years with innovative startups in health and life sciences, including digitalization of data capture in clinical trials, cancer radiotherapy, and as founder and CEO in oncology and CNS drug development companies. Pekka has actively supported health & life science teams as mentor and board member and IPO’d two companies. He loves working with passionate founders who want to change the world for the better.