COVID-19 Private Financing

May 12, 2020

Guest Blog by John A. Urquhart, Partner, HealthCare Royalty Partners (HCR)

The global COVID-19 pandemic has introduced new risks and uncertainties into the healthcare system, the capital markets, and the global economy. Within the healthcare industry, hospitals and providers are postponing most procedures and office visits, many specialties are furloughing staff due to drastic cuts to revenue and sales representatives for pharmaceutical companies are grounded. The U.S. government and the Federal Reserve have taken extraordinary efforts to infuse capital into the economy so as to temporarily prop up companies and individuals who have been impacted by “stay at home” orders. Sitting here at the beginning of May, it is unclear when these uncertain times may end. 

However, even in today’s uncertain times, life sciences companies remain voracious consumers of capital to fund innovation. As a result, a logical question on the minds of many executive teams is “how do I raise the next round of capital?”

While the capital markets have been generally open for financings, stock prices have been volatile, making the cost of capital and potential dilution uncertain. In these turbulent times, private financings may be a viable alternative for companies looking to raise capital in the backdrop of the COVID-19 disruption.

Specifically, private investors that provide non-dilutive capital to late-stage and commercial companies have raised a large amount of capital in recent years to support life sciences companies that have successfully navigated the clinical risks of development and are seeking to conquer the challenges of commercialization. These private investors are typically looking to invest between $50M and $150M in a single investment, and they perform extensive diligence over a number of weeks prior to investing. 

If your company is nearing commercialization and this type of financing seems interesting, there are several key things to consider:

  1. Think Long Term: It is good for management teams to recognize that there is another tool in the tool kit when it comes to raising capital.  As they get closer to commercialization, different and lower cost of capital options exist. It is important to think about where a company’s cash balance will be when certain inflection points hit. How many quarters of cash will you have when pivotal data reads out? How many months of cash will you have when approval occurs?  If the answer is less than a year’s worth of cash, this will create a financing overhang on the stock.  
  2. Start Early: Raising this form of private capital takes longer than raising public equity; given the diligence process and long-term relationship, it is good to start discussions early in order to understand all options and pick the best long-term partner. The best time to start having conversations is often several quarters ahead of a planned launch.
  3. Relationships Matter:  These private investors tend to be long-term partners and it is important to pick a partner that has experience weathering choppy waters while also the expertise to provide more than capital. Optimizing terms matters in the short-term; selecting the right capital provider may make a difference in the long-term. Does the investor have the capital to make follow-on investments in a downturn? Are they part of a larger organization that has a more rigid orientation to addressing problems? Are you dealing with decision makers?

These are a few considerations that life sciences companies should be thinking about when evaluating private financing alternatives.  Raising equity in the public markets may not always be the most attractive capital available to commercial-stage companies. The current COVID-19 situation and equity market volatility may make a private non-dilutive financing an even better option for certain companies.

A recent example of a late-stage company raising non-dilutive launch financing is Chiasma, Inc., a Needham-based company eagerly awaiting approval and launch of Mycapssa, an oral formulation of octreotide to treat patients with Acromegaly. On April 7th, Chiasma entered into a $75M financing with HealthCare Royalty Partners to support the launch of Mycapssa in the U.S. 

Completed in the middle of the COVID-19 economic shut down, this financing enabled Chiasma to continue to invest in its business.  Despite market conditions, Chiasma needed to raise capital to launch Mycapssa, and this non-dilutive financing was an effective way to fund the pre-commercial and commercial activities necessary to have a successful launch.

If you are interested in contacting HealthCare Royalty Partners, a provider of non-dilutive capital for commercial-stage life science companies, please email John Urquhart for more details.

About the Author:

John A. Urquhart
Partner at HealthCare Royalty Partners (HCR)

John A. Urquhart is a Partner at HealthCare Royalty Partners (HCR). Mr. Urquhart, based in Boston, is focused primarily on HCR’s activities in New England, including transaction sourcing and structuring. Mr. Urquhart has over a decade of healthcare investing experience in the royalty and debt markets.  Since 2012, he has worked on fifteen investments representing over $900 million in transaction value, including as the lead on eight of these investments, representing commitments of almost $650 million. Prior to joining HCR in 2007 as HCR’s first employee, Mr. Urquhart was an investment banking analyst at Cowen and Company, where he focused on mergers and acquisitions as well as debt and equity financings. Mr. Urquhart holds a B.A. from Brown University and an M.B.A. from The Wharton School of the University of Pennsylvania.

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