In this article, the first in what will become a regular series looking at the challenges facing the UK life sciences industry, Dr Stephen Franklin starts to consider some of the funding challenges facing first time CEOs.
The power of the life sciences industry
In May of this year, the UK government announced a £650m package to support economic growth in the life sciences; a sector that employs over 280,000 people and generates £94 billion in annual turnover across the sector for the UK.
If there is one positive to come from COVID, it is the fact that it has well and truly elevated the importance of the life sciences to the UK, not just as a driver for economic growth but as a force for good; one that saves lives and materially improves the quality of life for so many.
CEOs and the cash runway
However, if you are a CEO of an early-stage life science company, especially a biotech company developing novel products, such as drugs or diagnostics, the above statistics are likely lost on you.
You will be focussed solely on where your next tranche of funding is coming from and how you can “stretch-out” the cash. The BioIndustry Association (BIA) tells us that £295m was invested in UK biotech in Q1 of 2023 - you may be reading this thinking you “missed the memo”. The reality is that in the current market a substantial amount of this will have gone into revenue generating companies or, if it is going towards early-stage pre-revenue biotechs, it is likely follow-on funding from current shareholders to extend the cash runway until the market’s appetite returns. It’s tough out there.
Chasing capital – pain vs gain
To be clear though, it’s never been easy. I have spent 20 years setting up new biotech companies in the UK; taking two from just an idea to a public market listing. I have to be honest and say it was largely a tortuous existence interspersed with the heady relief of raising the latest tranche of capital! The reason why we do it though is that we are completely enthused by the innovations we are developing and passionate about the impact they will have on people’s lives. On balance, when these wins come through, it’s worth the pain!
So where is all this going you may be asking? My point is that cash is hard to come by, always has been, always will be. When you get it, that cash serves one purpose: to advance your company to the next material value inflection point so you can raise further investment at, hopefully, an elevated valuation. It follows therefore that it is of paramount importance to look after cash, deploying it efficiently towards only value-creating activities.
One way in which this can be done – and there will be many “first-time” CEOs out there that have not yet considered this – is to lease capital equipment. Leasing equipment (if you qualify and we’ll come on to that another time) is one way in which you can preserve funds for activities that generate value.
In this regular series, I will be sharing with you some of the pains and gains of running a life science company and start to explore the benefits of using alternative sources of capital to finance your equipment.
This article represents the opinions of Dr Stephen Franklin based on information and research he considers to be reliable. The content is provided for informational purposes only and should not be considered as investment advice. DLL does not assume any liability for the accuracy of the information contained in this article or for any errors or omissions herein. Dr Stephen Franklin receives a recurring consultation fee from DLL.