two scientists looking at a laptop
Industries: Life Science

The growth path of life science companies is often long and capital intensive, making them especially susceptible to economic volatility. We explore this challenge in the current environment and possible paths forward.

With high inflation, rising interest rates and prolonged uncertainty across markets, the capital raising landscape has become increasingly difficult for startups from all sectors to navigate. However, due a variety of factors, this challenge is especially pronounced in the life science industry.

Because of the nature of the work and layers of regulation, life science is inherently a capital-intensive sector. Startup companies in the life science industry are subject to longer-term and often unpredictable timelines. Unlike a company in the technology sector, for example, that can typically move from concept to launch on a fairly predictable (and shortened) time frame, life science companies have a more arduous and complex development cycle. The journey, which usually involves clinical trials, FDA approval and other hurdles, requires ongoing capital.

“You typically will not be able to secure financing up front that will be sufficient. Those investments tend to come in phases,” said BPM Assurance Partner and Life Science Co-Leader Michael VanderKlugt. “As a result, life science companies are constantly in fundraising mode.”

Ongoing capital needs that can span a decade or more mean that life science companies need the ability to navigate every season of market conditions. This requires strategic and long-term planning.

Raising capital in volatile markets

Recent market swings have changed fundraising in the life science industry and beyond. Rapidly rising interest rates have caused the cost of capital to spike. Market volatility is pushing valuations down, and the IPO and SPAC markets have noticeably slowed. Despite these economic conditions, unfortunately, the need for ongoing funding doesn’t stop—, especially in life science.

“There’s definitely been a change in the landscape. Some companies will continue to thrive. They have capital they can survive on. But some companies may not have secured financing before the funding window tightened, or have had to postpone IPO plans,” said BPM Tax Partner and Life Science Co-Leader Julie West.

Some options to consider in this environment include:

    • A potential restructuring to bring down costs and improve efficiency.
    • Leveraging and optimizing cash reserves as much as possible.
    • Scrutinizing cash management while staying private for longer.
    • Rethinking new paths to longer-term value creation.
    • Considering a possible sale if current valuations support the transaction.
    • Issuing stock options or considering a stock repricing.

Each of these paths listed above requires an in-depth look at current valuations, as well as careful planning around the numerous tax and accounting implications.

How BPM can help

Given current market conditions, the exit you may have originally anticipated has likely shifted. Our team of experts have weathered these storms before and can help you navigate this changing landscape. Contact us today to get started.

Headshot of Michael Vanderklugt.

Julie West

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