Biotech Investment Strategies: How, When and Where to Invest

biotech investment strategies

How, when and where to invest in a biotech company can be essential to the success of both specialized investors and the companies receiving the money. At Refresh Basel, I spoke to Chandra Leo, Partner at the life sciences VC firm HBM Partners, to discuss investment strategies in biotech and his advice for companies seeking funding.

When to invest?

Investing in biotech is very different from investing in any other industry. In order to be successful, biotech companies need to burn huge amounts of cash over many years — the average time to develop a drug, from concept to market, is 12 years.

Investment strategies in biotech therefore need to adapt to the industry’s unique needs. Based in Switzerland, HBM Partners has a distinct approach that seeks to make the most of it. As Chandra Leo told me, most VCs have a limited time frame in which they can make a return on the money invested, often set at about 10 years after the money was initially raised.

“Obviously, since biotech is a relatively long-term endeavor, that doesn’t work all the time,” he explained. “Our fund is an evergreen fund, which means it’s a permanent capital structure. We can invest in companies for an extended period of time if necessary.”

“Sometimes things just take longer than you think. It’s also an advantage because we don’t always invest in the private side… but we can also accompany these companies as they go public and then we can invest after the IPO.”

biotech investment strategies

Creating value in biotech often requires a series of steps as a product hits development and regulatory milestones until it eventually reaches the market. If the time is limited, an investor might have to sell their equity or shares before the company reaches the next milestone and miss a bigger opportunity.

“In the end you invest not in the idea that the company goes public, you invest in the underlying development of the drug… Being patient can reward you in an industry where things can take a long time.”

Where to invest?

The location of a biotech company can have a big influence on how much money it is able to raise. Most investors focus on specific geographic areas. Not HBM, which has no limit to where in the world it can make an investment.

“About 50% or more of the companies in our portfolio are from the US,” said Leo. “It’s a numbers game… Obviously the US is not only more advanced — it started earlier in the biotech space and they’re more experienced as a market — they have a much larger number of mature biotech companies that we can invest in.”

“On average, management teams in the US have more experience just because the industry is older… And while M&A — the selling of the company to a large pharma player — should work equally well for a company wherever it’s based, the other path — taking the company public — of course depends on where you are located,” he noted, mentioning that in the last couple of years the number of biotech IPOs in the US is clearly higher compared to Europe.

Still, Europe is becoming a location of interest for many specialized US investors, who usually have deeper pockets. “A lot of US companies have higher valuations than their EU counterparts. I think that makes it attractive to invest in Europe,” explained Leo. “Valuations in China are also getting relatively high and Chinese investors are coming to Europe.”

Within Europe, Leo believes some of the most promising regions include Scandinavia, the Netherlands, and, of course, Switzerland. “Switzerland is one of those countries that is more successful that you would expect based on the population size,” he said.

What to invest in?

“Oncology, orphan diseases, immunology, CNS — those are the indication areas that will provide the majority of biotech opportunities. But ultimately we are looking at each investment by itself. Sometimes we invest in things that might seem boring… you can take an old drug and do something really new and innovative for the patient. You can deliver it in a new way or you can make it safer,” said Leo.

In the end, Leo believes it’s essential that a company focuses on the areas with highest medical need. That is crucial for a company to get their treatment or device reimbursed.

biotech investment strategies

Beyond the specific indication, the technology also has to be taken into account. For example, in recent times companies focusing in the medtech space have faced challenges to finding investment.

“Many of the US investors in the life sciences have basically left the medtech space altogether… It’s more difficult to take these companies public. It’s more difficult also to sell these companies,” explained Leo.

“If you are a cancer company with a drug with clinical data you can easily find a dozen pharma companies that will be interested in it. In the medtech space, because it’s usually a very specific type of technology sometimes there are only 2–3 companies in your space that could acquire your company, or partner with your company. One of them may have an in-house competitive product, and another one may not be interested right now.”

Getting the funds

Ultimately, a biotech company needs to get ready to convince investors that its technology is worth investing in. After many years of experience, one of the key factors for Leo is whether the company can clearly convey what the benefit that it will bring to patients is.

“When starting a biotech company you have to start with the end in mind… Look all the way to the patient even though that might be 5 or 10 years in the future from when you start the company,” he said. “You have to look at the competitor landscape and be able to compete not only with what’s out there today but with the types of products and services that will be available many years from now when your product enters the market.”

Besides that, a strong management team and patent position are also important. Leo’s main piece of advice for anyone seeking to make it to the finish line is to grow their network and use it to their advantage.

“Talk to as many people as you can, because you need criticism and validation early on… They will point you in the right direction, they will put you in touch with other advisors and other executives that can help you along the way.” 

Explore other topics: SwitzerlandVenture capital

Newsletter Signup - Under Article / In Page

"*" indicates required fields

Subscribe to our newsletter to get the latest biotech news!

This field is for validation purposes and should be left unchanged.