This Too Shall Pass

Posted June 28th, 2022 by Bob Clarke, in Capital markets, From The Trenches

By Robert Clarke, CEO of Kinaset, as part of the From The Trenches feature of LifeSciVC.

Although I intend to shy away from the cult of celebrity, a recent clip from Tom Hanks resonated with me regarding the current state of the biotech market. As Mr Hanks continues his evolution into that trusted grandfatherly type of statesman, he spoke sagely with a group of peers and juniors reminding them all that “This too shall pass”.

With the benefit of some gray hairs of my own and now some decades of biotech industry experience, I would like to echo that sentiment of “this too shall pass” for all of us in biotech particularly the younger generation of emerging founders, scientists, and business people. The work we collectively do is too important for patients. The level of commitment shown across the industry with the tailwind of innovation will lead to a rebound in days ahead.

Unfortunately, I don’t have the ability to say just when and I know that a return to a more bullish state will come too late for some. But speaking from personal experience, we all can weather this storm and continue to do great things for those in need. I have directly experienced biotech market volatility as a mid-level bench scientist, as a private biotech VP of Biology struggling to raise VC financing, and as a publicly traded CEO trying to find public market support. It was always uncomfortable. It always involved some pain. But we always managed to come out of it as the market turned back to a happier place.

Now as a private company CEO working in another a bear market made worse by a global pandemic, a disrupted supply chain, and an uncertain European conflict, I can see our industry is in a struggle but we will come out the other side with accelerated learning gained during challenging times-really we learn more from adversity than when we are handed things. This includes tangibles like honing a pitch and negotiating a term sheet, the nuts and bolts of moving your project or company forward. And perhaps just as important, human skills of emotional intelligence, compassion, and learning to pick yourself back up. The continued opportunity to may wind up being at another company or fund, but these new experiences will travel with you.

My own journey began in 1999 just as biotech was getting pulled onto the cresting wave of the internet bubble. Valuations were incredibly frothy. I had expected to be an academic when a professor at Harvard informed me I didn’t want to be professor. He handed me a small ad from the Boston Globe for Advanced Inhalation Research (AIR) and I soon found myself a Sr Scientist at a wholly owned Alkermes subsidiary.

But by 2001, the bubble had burst and biotech was caught in the churn as valuations dropped precipitously. When the FDA surprised us with a non-approval letter for a product candidate a few months later, the company had to make the difficult business decision of downsizing to conserve capital. There was the gnaw of survivor’s remorse as I watched close colleagues and friends leave the company. With the reduced burn rate, the market did respond to management’s decision.

By 2008, I was VP of Biology at a private company (Pulmatrix) which had completed a VC-backed seed/Series A and acquired significant non-dilutive funding from the US Government. We had a novel lead therapeutic and an emergent platform technology. We needed a Series B. But oh my was it the wrong time to need a Series B. The fallout from the toxic mortgage crisis had expanded into a full scale financial crisis. The banks were too big to fail and all that. Biotech investment dried up. What we thought was a killer story was just that…a story. We were able to get the meetings what we couldn’t do was secure commitments. I learned to hear no in every way possible but also learned to persevere. We operated with incredible efficiency and we made hard decisions about great ideas that we just could not take forward at the time. We didn’t have a broken deal, every deal was broken at the time.

In the end, we were able to get in front of a couple of key investors for a second time. By now it was 2009 and the market was just showing signs of re-emergence. Investors were open to listening again. I wear it as a badge of pride that one of the investors described us as “something that gets stuck on your shoe and you can’t get it off”. And so a Series B was secured.

Fast forward to 2015. I was now CEO of Pulmatrix and we were weathering the typical pivots of biotech. The lead program had hit a snag and our emergent pipeline programs on the platform tech were still pre-clinical or Phase 1. Pulmatrix needed cash and raising fresh VC capital on an older investment was going to be hard enough…and this was all compounded by yet again a downturn of the biotech market.

Once again, many meetings were had and many no’s were heard. It was clear finding an emergent lead for the VC syndicate was going to be a challenge even with support from the insiders. The IPO market was not really an option given market conditions and the stage of the company’s lead assets. Alternative structures of mergers became a serious consideration be they straight merger or reverse merger. In June of 2015, the company became public on the NASDAQ via a reverse merger and PIPE financing from the insiders. This became the jumping off point for the next stage as NASDAQ:PULM and future opportunities to raise capital in the public markets as biotech once again rebounded.

So what of today and this current bear market we are all trying to navigate? And what’s different this time?

I wish I could provide an accurate prediction but I can’t. What I can offer is my opinion that this particular market will likely take longer to respond and to get back to where we’d all like it to be. My opinion is driven by global matters, constrictions on approaches to the public market and additional financings, and social constructs in our handheld world.

As the world emerges from the global pandemic, we all recognize COVID-19 is not going to just “poof” disappear. It is going to be part of the ongoing cadre of infectious diseases that we must deal with annually like influenza and RSV. The disparate approaches around the world leave an air of uncertainty about what the future holds for public health and for global financial markets.

The ongoing Russian invasion of Ukraine will continue to add to fears of unrest that further complicate the rebound of the biotech market. The potential for NATO to consider action is going to be a concern until a potential resolution becomes more apparent.

What’s also different now versus 2008? Well, back then, you got your updates on the financial news in your daily newsletter sent to your inbox on your computer. How quaint that was. Now, with the advent of Twitter etc, it is a constant bludgeon of opinion flooding your iPhone feed from industry sources, retail traders, biotech analysts, and journalists who get measured for success by clicks. This amplifies the signal particularly of negative news ie failed trials, biotech downsizings, NASDAQ drops, etc.

Since the heady days of early 2021, the ability to IPO has become extremely constrained. The next best thing to IPO, the SPAC, has become mostly not a thing again. Reverse mergers have not emerged as readily as some had predicted and valuable targets are met with large numbers of potential suitors. The willingness of cross over investors to jump into more speculative plays has clearly pulled back at the moment.

It is human nature to consider exertion of an additional modicum of caution around the flow of capital until one feels the rug is not about to be pulled. So, we might all expect that the next return to a more robust market will take longer this time around.

Which brings me back to Mr Hanks. It is no doubt tough sledding for many of us right now no matter where you are. There will likely be additional wind downs or restructurings. There will be more time needed and more doors to knock on when looking for the next round of financing. But please don’t give up. The many patients we serve need your effort. New innovation will continue to emerge that will benefit from your experience and ability. And as Tom says, this too shall pass. In the meantime, enjoy the summer, go see Top Gun in all its cheesy gung-ho glory bridging 1986 to 2022, and continue to feel inspired by the many great things we do in the biotech industry.



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