PERTH, Australia – Roughly 40% of Australia’s biotech companies are seeking capital as they feel the pinch from international travel bans that seriously hamper capital raising, according to a recent Ausbiotech survey.
Australian biotechs count on international investments, and most CEOs spend a fair amount of time traveling to international conferences to get in front of investors.
“When the crisis first unfolded there was a sense that that it would be abrupt but that we would bounce back quickly, and now as the weeks rolled on there was this dawning realization that this could have a very long impact,” Ausbiotech CEO Lorraine Chiroiu told BioWorld.
“Long-term planning is almost close to impossible these days,” she said, noting that for the association, canceling its annual meetings has cut its revenue by almost three-fourths.
The financial shock and impact are still gathering strength, said Brandon Capital’s founding partner and managing director, Chris Nave.
“It’s hard to believe that over the next 12 months there won’t be a contraction in the amount of capital and biotech innovation,” he said, stressing that institutional funds are focused on making sure they support their current portfolios.
Companies that don’t have a strong investor base among their shareholders will be challenged, he said, as high-net-worth investors will likely retreat from funding innovative companies given the impact COVID-19 is having on their companies.
“Companies with large, established investors like ours are able to weather the storm and protect our companies, but those who don’t have solid investors won’t have that protection,” he said.
Still, Brandon Capital will continue to invest, and there are some opportunities popping up as a result of COVID-19.
“We’re still active but cautious,” Nave said, warning that there will likely be a big reduction in new deals.
He said investors are not focused on COVID-19, because vaccines don’t make money, and the pharma sector and government will need to take the lead on coming up with a COVID-19 solution.
Clinical trial programs stalled
A lot of biotech companies, particularly those in early stage trials, have put their clinical trial programs on hold, and many will cut staff and burn through their cash, Nave said.
About 62% of Ausbiotech’s survey respondents said their clinical trials are being delayed or that recruitment has been paused. Those that are going ahead are looking to remote monitoring and teletrial capabilities.
The Commonwealth Department of Health recently produced a set of teletrial principles that could be applied nationally.
“Teletrials could be a big pivot for Australia and could serve our rural communities well into the future,” Chiroiu said, noting that remote diagnostics are going to be a key part in enabling telehealth.
Biotechs not eligible for government programs
Nave said that efforts by the government to ease some of the pain have not trickled down to biotech companies.
Legislation was passed by the Australian government on April 8 for the Jobkeeper payment; however, the majority of biotech companies are still excluded from the scheme. The program was announced as part of the AU$130 billion (US$84.67 billion) package to help businesses keep people in their jobs and re-start when the crisis is over.
Employer eligibility for a business with a turnover of less than AU$1 billion is for those whose turnover has fallen by more than 30% for at least a month.
About 75% of Ausbiotech respondents said the Jobkeeper payment would not help their businesses.
“The Jobkeeper scheme was a terrific announcement, and everyone was hopeful that it would enable those companies that can’t continue with their clinical trials to hibernate or preserve their cash but keep their skills intact,” Chiroiu said.
The program was seen as a lifeline of sorts, but then the realization that the criteria required a drop in revenue, and the “vast majority of our biotechs don’t have revenue.”
In fact, 86% of Australia’s biotechs are pre-revenue, she said. “We’re looking for a different treatment of biotech companies to allow for that.”
Ausbiotech has suggested that companies’ tax losses from R&D tax refunds would be a good criteria to base losses on rather than income.
Ausbiotech is seeking a class ruling on the Jobkeeper payment scheme to provide the certainty that biotech companies need to continue to advance. A class ruling would provide the certainty companies need and would avoid the need for individuals to seek private rulings.
“Life science companies are working around the clock on essential research and development of vaccines, repurposed and emerging therapies, as well as test kits and ventilators to combat COVID-19. Many of these companies have already indicated that their ineligibility to access the payment will make a material difference in their ability to retain their full teams,” Chiroiu said.
“There’s also a theme of sovereign capability coming through very strongly here. It is in Australia’s interest, and we’re seeing that very strongly demonstrated that we’re able to produce things here, we’re able to manufacture here, and we’re able to develop products here.”
More scrutiny for foreign investments
Yet another impingement was the announcement that all proposed foreign investments into Australia would be subject to the Foreign Acquisitions and Takeovers Act 1975, requiring approval, regardless of value or the nature of the foreign investor.
Treasurer Josh Frydenberg said the move was being made as a temporary measure “to protect Australia’s national interest as we deal with the economic implications arising from the spread of the coronavirus.”
The big change is that the monetary screening threshold has been reduced to zero, which means that all foreign investments must be reviewed by the Australian government to “ensure appropriate oversight over all proposed foreign investment during this time.”
The Foreign Investment Review Board (FIRB) will be working with existing and new applicants to extend timeframes for reviewing applications from 30 days to up to six months.
Chiroiu said she’s still seeing some collaborations, but the foreign investment rule will impact those.
“We’ve got one deal underway with two biotechs looking to merge, and they’ve got foreign investors, so they may well be held up,” she said.
Brandon Capital’s Nave said the restrictions on foreign investment coupled with the pressure superannuation funds are under are making for a tough capital environment for biotech companies.
Government needs to make sure that all the things that have been working over the last decade continue, he stressed.
“During the last financial crisis, half of the jobs were created by venture-backed companies, so government needs to ensure that all the gains that have been made aren’t lost so the sector will be able to rebound quickly when this is all over.”