Navigating the Current Biotech Market Conditions: The Finance Team for Today

In stark contrast to the record-breaking events and IPO boom of 2021, the 2023 biotech market now grapples with distinctly different challenges.

In a sample of 570 US biotech organizations, 40% are currently trading below cash.¹ Furthermore, although venture capital investments in the biotech market peaked in 2021, investments and the number of deals have since seen a consistent decline (Figure 1.)

As the market continues to change, the finance team needed to navigate it is also evolving. Recent Russell Reynolds Associates research found that over half of biotech leaders are reevaluating or acknowledging the need for change. What’s more, 44% of all US biotech CFOs are in the role for the first time, showing how much change this market has already weathered (N=390).²

^{Source: RRA Analysis of Biotech Venture Capital Investments and Deal Count, 2019-Q2 2023, Pitchbook}

As biotechs move to execute their organizational strategies, the CFO and finance team have a critical role to play. To gain a better understanding of how finance teams are navigating today’s challenging market conditions, we surveyed 84 CEOs, CFOs, and audit committee chairs (ACCs) of biotech organizations. Consistent with the overall US biotech market, 42% of our respondents’ organizations have a first-time CFO.

Due to a changing market dictating needs for broader skill sets, over half of biotech leaders don’t think they have the right skills on their finance teams

Based on the current strategic priorities for many biotechs, CEO and audit committee chair respondents acknowledge that there is a need for change in the finance team’s skills. Over 50% of respondents are re-evaluating the skills they need or acknowledging that there is a need for change in some of the finance team’s skills (Figure 2).

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

The biotech realm mandates skills in corporate, business development, capital markets, and investor relations, yet this is also where the most significant gaps amongst finance teams appear (Figure 3). One-third (33%) of respondents noted a gap in their finance team’s corporate and business development skills, and 29% noted a gap in capital markets and investor relations skills.

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

Many firms address these voids by relying on external advisors and hiring new team members (Figure 4). Given the size of many early-stage biotech companies, many are opting to hire external advisors who specialize in business development, investor relations, and tax, as they aren’t large enough to sustain these niche roles.

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

Nearly half of biotech CEOs and CFOs anticipate needing funding within the next six months

Respondents to our survey underscored the pivotal roles that CEOs and CFOs play when it comes to financing, with outside advisors and general counsel also considered to be important stakeholders. However, opinions can differ slightly on the timing for the next round of financing.

CEOs and CFOs agree that there is an urgency around financing needs. All of the biotech CEOs we surveyed anticipated needing additional funding within the next two years, and 43% said it would be needed within the next six months (Figure 5). Their CFO counterparts responded in a less conservative manner, with only 37% anticipating a need for funding within six months, 51% in the next one to two years, and 12% in the next three to five years.

The urgency around funding is driving biotechs to be creative when it comes to advancing their companies' strategies, including a renewed focus on pursuing business development.

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

Biotechs are actively pursuing non-dilutive funding via business development activities while cementing investor relationships and support

Nearly three-quarters of our respondents do not have a commercialized lead asset. Within that, 19% are currently operating in a pre-clinical environment, while 37% of respondents say their lead asset is in Phase I or Phase II and 14% say they have a lead asset in Phase III of development. In the absence of a revenue-generating product, and satisfying the urgency for funding, companies are focusing on business development and investors to advance their company’s strategy.

According to our respondents, 85% of biotechs are currently focused on capital-raising activities via potential M&A and strategic partnerships, 81% are securing new investors, and 69% are strengthening relationships with existing investors. Internal initiatives focused on capital preservation, such as re-evaluating program portfolios and streamlining the workforce are also on biotech leaders’ minds but are not top initiatives as they work to optimize capital (Figure 6).

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

CFOs and other stakeholders are sometimes misaligned on the finance team’s capabilities and enterprise-wide influence

While biotechs are pursuing new business development opportunities and working on developing and strengthening their investor relationships, respondents suggested that finance team’s potential impact could be bolstered.

Nearly half (46%) of CEOs felt that their current finance team did not meet the needs of the company’s external positioning and IR needs, especially critical right now given fundraising needs. On the other hand, CFOs view themselves as more well-connected with the investor community than other stakeholders perceive them, with nearly half of other stakeholders seeing this as an area for improvement (Figure 7).

There are less drastic differences in opinions when it comes to cash forecasting and management and board engagement. CFOs view this as critical and hold their teams to higher standards than other respondents.

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

In addition to the differing perceptions around the finance team’s skills, perhaps unsurprisingly, CFOs see their finance teams as exerting more influence over enterprise-wide decisions than other stakeholders (Figure 8).

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

Similarly, CFOs are more likely to say their involvement with the CEO and audit committee chair hasn’t changed in this new market, versus the latter saying it has (Figure 9a and 9b). CEOs and audit chairs are more involved in financial decisions due to pressing market conditions; unsurprising, given that 44% of biotech CFOs are in the role for the first time.²

^{Source: RRA, Navigating Current Biotech Market Conditions: The Finance Team for Today, 2023, n=84, Biotech Executives and Senior Leaders}

References

¹ Russell Reynolds Associates CapIQ analysis of US Biotech organizations, N= 570, 2023 

² Russell Reynolds Associates US Biotech CFO analysis, N = 390, 2023

Authors

• Yvonne Lu co-leads Russell Reynolds Associates’ Global Biopharma practice. She is based in San Francisco.
• Rose Mistri-Somers is a member of Russell Reynolds Associates' Financial Officers Practice. She is based in New York.
• Nicholas Roberts is a member of Russell Reynolds Associates' Financial Officers Practice. He is based in San Francisco.
• Catherine Schroeder leads Knowledge for Russell Reynolds Associates’ Financial Officers Practice. She is based in Toronto.
• Cameron Findlater is a member of the Healthcare Knowledge team at Russell Reynolds Associates. He is based in New York.