Biotech Faces Headwinds in 2023. Stories Matter More Than Ever.

For the first time since 2020, the J.P. Morgan Healthcare Conference returns to San Francisco.?

It’s long been the premiere meeting connecting influential investors with emerging and established biopharmaceutical companies. Presentations and conversations in ballrooms and bars can lead to or strengthen relationships that enable transformative deals or investments.

That’s unlikely to change, but the sentiment on biotechnology has. If 2020 showed science could save the world, 2022 showed that the halo the industry experienced in the wake of COVID has faded. The impact has been particularly acute at publicly traded companies. Hard data doesn’t lie. Deals were small, there were drastically fewer IPOs vs. 2020 and 2021, and biotech stocks were called “a dumpster fire.”??

But what about private companies, especially startups that launched within the last few years and now find themselves in a difficult climate? What are their leaders feeling? What are they prioritizing this year? And what do they think matters most to investors??

At Scient, we’re privileged to work with just such organizations. We interviewed and surveyed a number of C-suite executives and noted several patterns we see as unique to startups. Here are 4 key takeaways and the communications implications we see:??

Executives think investors’ moods will be the same or worse than in 2022, making it harder to raise money. Executives’ own moods are poor, too, but tinged with optimism for the long term.

What we heard:

“There’s a looming economic downturn people think will happen this year. People kept their wallets in their pockets in 2022 more than in 2021. They’re more particular about where they're investing, who they're investing in, and valuation.”?

Communications implications: Investors have money available, but they’ve become more cautious. SVB, in its 2022 report on healthcare industry trends, cited >$50 billion in newly raised funds by VC firms alone over the past 24 months and nearly $22 billion in new funds last year, just short of 2021’s record $28 billion. As this dynamic continues, competition for that capital will be incredibly intense. It has never been more important for companies to have a clearly defined, compellingly articulated value proposition and to ensure that decision-makers and stakeholders know their story.

Executives overwhelmingly agree that word of mouth is the leading way investors learn about and validate investment opportunities. They chose it over investor conferences, news coverage, and research reports.?

What we heard:

“It’s not that word of mouth is the best way, but the reality is that it probably is more important than investor conferences or news coverage. Word of mouth has proven to be the best way to get the story out there consistently, and it can be an easy multiplier.”

Communications implications: In practice, word of mouth means “buzz” and validation. And today, word-of-mouth increasingly means social media, not just social interaction. There may be an organic element, but in our view, it’s not nebulous. Companies can harness it strategically and intentionally until it becomes a groundswell. Integrated communication – using every available channel (news coverage, social, website) – and consistently targeting it to the right stakeholders is the match that gets word of mouth boiling.

Many early-stage companies plan to modestly grow or keep their headcount the same in 2023, even as some companies reduce their teams and constrain spend. The talent market for the most specialized positions will remain extremely tight.

What we heard:

“We’re going to be prudent. We’re not going to double in the way companies often have done in our sector between their first and second year of operations.”?

Communications implications: It can often be an afterthought, but internal communication is essential to early-stage companies that, by nature, undergo constant change. Helping current employees understand a company’s mission, vision, strategy, and the external forces that may affect that can build resiliency and maintain morale. These are two important traits for retaining a workforce. It also helps employees become a company’s best ambassadors when hiring is needed, which communications can help formalize and amplify.

Executives have mixed opinions on the factors they believe will most affect investors’ decision-making in 2023. They were split almost evenly between:

• Whether a company is already in the clinic
• Perceptions of whether a company’s valuation is fair
• Potential of a company’s overall platform or technology

At the same time, few executives said they strongly agree that when they present to new investors, they’re confident they’ll understand their company’s value proposition.

What we heard:

“Valuation in this environment will be a big deal.”

“It will be the rare company still that is going to drive investor sentiment from an overall platform or technology.”?

Communications implications:?In a tightening, more competitive landscape, companies must lean into their strengths and be ready for investors to poke at weaknesses. Companies will need to more frequently pressure test their presentations, anticipate and be prepared to answer hard questions, and have executives speak the same way to every investor every time, whether in a direct 1:1 meeting or a news interview that will reach those investors.

Stories will matter in 2023. But the story is just the beginning. Getting that story to the right influencers and stakeholders is what we believe plays a crucial role in supporting a company’s financing and recruitment goals. We’re here to help and glad to talk.