RTW Investments is a global, multi-strategy investment firm focused on supporting innovative biotechnology and biopharmaceutical companies in the United States, Europe, and China. To get an overview of what’s happening in biotech financing in 2024, she spoke with Stephanie Sirota, Chief Business Officer at RTW Investments.
About RTW Investments
The firm invests in both public and private companies across their lifecycles, with a focus on companies addressing next-generation gene and RNA therapies, rare diseases, targeted oncology diseases, cardiovascular diseases, and neurological diseases. Masu.
RTW Investments is a $7 billion full-lifecycle investment firm focused on the most innovative sectors across biotechnology and medical technology.
The company was founded in 2009 and has a global presence in the sector, with offices in New York, London and Shanghai.
“About eight or nine years ago, along with a few other professional investors, we started investing in late-stage private rounds and pre-IPO rounds, building that crossover ecosystem. Ironically, we were able to do it without spending that much money,” Sirota explained.
“As companies and management teams become smarter about who to support as their companies go public, professional investors with public operations can continue to support these companies. It became clear that there was a crossover ecosystem and an evolution of biotechnology. And we were one of the leaders in that.”
RTW Investments’ first company was Rocket Pharmaceuticals, a gene therapy company.
“We have a lot of very interesting assets that are moving through the hands of academia that are ready to move into human clinical trials, and we need more capital, and we believe that someone can program those programs. “I started it in a backroom with the idea that we needed to promote it from within academia,” Sirota said.
How will funding companies evaluate biotech investments in 2024?
The importance of a science-driven approach
Sirota said science comes first when evaluating companies. And this ties in with what she called a “Warren Buffett-like framework” for evaluating company valuations. The competitive environment is also considered.
“Our favorite way to invest is to identify assets that we think will have a meaningful transformational impact, not just a short-term momentum step-up, but we look for ones that can capture multiple returns. , because we recognize value before other companies in the market recognize value.”
In his 12 years at RTW Investments, Mr. Sirota has seen the company triple the number of ways it can address disease.
“It’s not just small molecules and antibodies. We also have gene replacement therapies, gene editing, antibody-drug conjugates, and proteolytic agents. There are many ways to deal with disease. We are definitely tracking advances in treatments. But we’re also looking across disease areas and therapeutic areas. So lately we’ve been really excited about some of the adjacencies, like metabolism and obesity and liver disease,” she explained. .
Data and disruption: The foundation of a 2024 biotech investment strategy
Sirota said it’s important for investors to continue researching all areas and recognize when there is an opportunity to make a difference.
“Our process actually starts with data collection. We also have teams that support our research teams. And we probably attend over 200 medical conferences a year, either in person or remotely. And that’s very important to our process, because we need to have that primary scientific data.”
“When markets are down, competition for capital becomes fierce.”
Stephanie Sirota, Chief Business Officer, RTW Investments
Sirota said RTW Investments tends to avoid crowded areas.
“We are seriously looking for drugs that we think will break the current standard of care or bring about a new standard of care. Our level of involvement will be determined based on need. If we’re already in a public company and that public company has a sound and sophisticated management team, most of the time we’ll just be passive investors, and that’s the bulk of our investment. It can be said that it is a part.”
2024 trends impacting the biotech investment environment
Funding challenges
It remains a hot topic as many biotech companies struggle to raise funding. Mr. Sirota said it was not just the market decline that affected the financing environment.
“If you look back, the two years before that were exceptional and it was very easy for companies to go to IPO and get a very rich step up to the final round. We’ve seen preclinical companies go public quite quickly, earlier than normal. And you know, when the market is down, there’s a lot of competition for capital.
“As generalist investors exit the space, what’s left are specialists like us who have to think hard about which companies we want to fund. And unfortunately, this kind of capital In competition, not everyone receives the same size check.”
However, Sirota believes that today’s environment is better, despite the lack of capital from generalist investors.
mergers and acquisitions
Mr. Sirota said there was a strong trend toward increased mergers and acquisitions last year, and that trend is expected to continue.
“That’s the beauty of the symbiotic relationship between biotech and big pharma. Biotech is nimble and can make very meaningful advances. And at some point, big companies realize that it’s a big pharma company. Gain the ability to market your medicines, properly commercialize them, and bring approved treatments to the global market, whether you are a company or a large biotech, especially small and medium-sized biotechs. Technology companies don’t necessarily have the ability to do it alone,” Sirota said.
He explained that there have already been around 12 deals this year with average premiums above 100%. M&A activity is occurring across subsectors, and this trend is likely to continue.
IPO market
Although the initial public offering (IPO) market appears to have calmed down a bit in 2023, Sirota said there have already been eight IPOs in 2024 compared to 11 in 2023.
“Less than half of this year’s IPOs actually trade above their IPO price. , I think they’re going to be a little more cautious about putting something out there. That’s going to be the deciding factor,” Sirota said.
Wave of positive clinical data
Sirota said that so far, 2024 is highlighted by strong clinical data. He said he hopes this will lead to confidence from other funders and other sources.
Sirota also said the FDA has become “a little friendlier.”
Part of this is due to burnout as well as more resources being spent on COVID-19, she explained. Many of the drug reviewers have retired and been replaced by less experienced staff, she said, leading to a more conservative approach.
“Right now, especially in the case of someone like Peter Marks, who is a real champion of gene therapy and gene medicines, we have some approvals and the FDA is friendlier. Hopefully, we will see more progress from biotech companies. With a series of positive clinical data and a stable or hopefully low interest rate environment, we hope all the capital will come crashing back.”
Royalty market: growing as a financing area for biotech investments in 2024
One of the growth areas for financing is the royalty market. Sirota explained that there will be competitive bidding for the product, with financiers competing for a piece of that royalty stream.
“Typically, they’re looking for existing commercial products where they know the revenue and don’t have to spend a lot of time figuring out or predicting what that commercial will look like. ” Sirota pointed out.
Mr. Sirota said that when a company approves a new drug, it needs to predict how much revenue the drug will achieve and its peak sales.
“There’s obviously going to be a Wall Street consensus on this. But we have a team that has been working on commercial forecasting for the past 15 years. We look at every new drug that comes out every year. , we’re trying to assess what the commercial projections will be. There aren’t too many people doing this. So we approach companies and give them money in exchange for a portion of their revenue. We can offer you a deal,” Sirota said.
“So we’re buying 5% of the revenue stream over the capital life of a particular drug. And it’s not dilutive, so in some ways it’s not the same as increasing capital. Cost of Capital Although it is lower than equity, it is not as taxing on a company’s balance sheet as debt.
