Given The Increase In Size Of The Industry And The Challenge Of Fundraising, Are There Other Ways To Think About Raising Capital?

GIVEN THE ENVIRONMENT OVER THE LAST COUPLE OF YEARS, RAISING CAPITAL HAS BEEN A TOP PRIORITY for most development-stage biotechs. The innovations that are happening all around us — in Alzheimer’s disease, obesity, and others — depend on a constant supply of capital to the sector. Given that traditional capital sources, whether through an IPO or the follow-on market, have dried up, development-stage companies have tried other methods. SPACs (special purpose acquisition companies) and reverse mergers have been discussed at most board of directors meetings, but unfortunately, those options have dwindled, too. For the more mature companies, venture debt or selling royalties have been options for generating capital.

I would propose a type of financing for earlier-stage companies that the industry used in its early days. Off balance sheet R&D limited partnerships (R&D LPs) were used by Genentech, Amgen, Genzyme, and many others when the traditional equity markets were closed in the 1980s and 1990s. The idea is to simply fund the development of a single asset through clinical trials instead of funding the entire company. It is a way of advancing clinical candidates through their pipeline, and for investors, it’s a way to identify and manage the risk associated with investing in the sector. The company raises needed capital, and investors receive milestone payments when certain targets are met and, ultimately, a royalty on the sales of the drug. In an environment where positive data is not being rewarded in the stock market, financing a single asset through development may be an attractive alternative.

DENNIS PURCELL is founder and senior advisor at Aisling Capital.