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Advice to smaller listed Swedish Life Science companies

Most listed Swedish biotech companies have cash and financing that is sufficient to last until 2023 or longer. The few who do not have this should probably hurry while there is time. During 2023-2025, many companies will return for new funds and competition will be fierce. In addition, there are also many listed diagnostics and medtech companies, as well as many unlisted life science companies, all with large capital needs.

Internationalization

Most smaller companies have websites in both Swedish and English, check; but unfortunately the international element often ends there, not counting attempts at partnering. Make an effort to strengthen the board of directors with at least one non-Swedish board member – it provides new and different perspectives as well as new contacts.

“Another important measure is to focus on attracting international investors into the company, preferably with experience from the relevant segment.”

Another important measure is to focus on attracting international investors into the company, preferably with experience from the relevant segment. With such partners of a certain owner size, the company may get a stamp of quality that can often facilitate initiation of international partner business discussions, etc. Be sure to choose a financial advisor who can really help you in this respect.

Industry consolidation

Given the foreseen future difficulties in obtaining financing, it is each company’s obligation to consider whether there are opportunities for industry consolidation – size is important and provides often greater business opportunities. Of course, there are often difficulties in achieving consolidation, but increased size often gives strength.

Guarantee consortiums – rights issues

Most managements and board members believe that they are doing the company and its shareholders a favor by securing a rights issue with guaranteed subscription, often up to 100%.  In companies without strong owners who can issue subscription commitments, you easily end up in the situation that the guarantee consortium owns between 10-35% of the company after the rights issue – and these are short-term investors; thus a period of share price pressure is for certain. The company certainly makes sure that the company receives the funds needed, and thus protects itself from liability, but by this sort of action the company more or less “ignores” the share price development, the company’s most important currency.

Such a betrayal of the shareholders could be avoided. For example, you could instead consider to do as follows; raise maybe half the capital required through a rights issue – there may be less need, if any, for a guarantee consortia. At the same time, if possible, take up a 2-5 year loan/convertible loan from one of the players working in that market (e.g. Kreos, N&G, FormueNord, Modelio, etc). The need for capital is thus covered, the share price is not exposed to severe selling pressure, and management and the board manage the operational and financial risks in the company.

Of course, the loan increases the financial risk in a biotech normally having a negative cash flow, but it is usually manageable as opposed to a fiercely pressured share price. The latter is difficult to manage and can have implications far into the future.

Vision-based communication to the stock market

As a listed company, you cannot promise future events. Nothing prevents you, however, from communicating a realistic picture of what the vision of the company will look like in a number of years if all goes well, i.e. where you want to reach in the long run. This does not refer to the often “short & dry” vision sentence that is found in the annual report, but a more concrete description and vision of where you want to reach.

“Such an approach to communication to the stock market provides, if handled correctly and consistently, investor dreams and confidence, higher share price (better currency), and greater opportunities to develop as a company.”

Naturally then communicate the strategy that the company is working with in order to reach the stated vision. Importantly, over time, there is a continuous adaptation of activity and communication based on how reality develops. Such an approach to communication to the stock market provides, if handled correctly and consistently, investor dreams and confidence, higher share price (better currency), and greater opportunities to develop as a company.

After the above is communicated, you can add details such as medical needs, market and pipeline and research. You have hopefully already caught the interest of investors.

Dare to dare

Most board members and managements in Swedish biotech companies have a scientific background. This is good, but few have experience in sales and marketing. As a scientist, you prefer not to say anything until you have proof. This characterizes much of PR and communication from Swedish biotech companies.

“Compare, for example, with the communication from companies with an Anglo-Saxon (or sometimes Danish) background. Here, representatives are not afraid to describe concretely what the company’s vision may mean a couple of years ahead under the assumption that all is going well – and it is appreciated by investors who often know about “biotech risk”.”

Compare, for example, with the communication from companies with an Anglo-Saxon (or sometimes Danish) background. Here, representatives are not afraid to describe concretely what the company’s vision may mean a couple of years ahead under the assumption that all is going well – and it is appreciated by investors who often know about “biotech risk”. The board has hiring of the CEO as one of its three main tasks. The communication aspects appear to be underestimated. Swedish companies often appear to be terrified of painting with a big brush and conveying dreams to investors. Instead of painting a vision of where you want to go AND the strategy of getting there, many hasten over a one sentence vision statement and go straight to the pipeline and patents etc. – and believe it will fly. Cultural issues like “do not glorify yourself” appear to be at work here.

If companies do not dare to create credible dreams with investors, biotech investors will also be cowards hesitant. Nowadays, every time a company makes a new rights issue, which is seldom a surprise, and is often a positive sign that there is belief in success, the value of the entire company often drops as a reflection of the proposal. Where this happens it often reflects a lack of enthusiastic (but still realistic) communication.

“The conclusion from this review is that possibly Swedish companies are maybe not so “street smart” – they use Swedish advisers who primarily act in their own interest in a small Swedish biotech capital market.”

In a recent review of a French biotech, very comparable to two listed Swedish biotechs combined, the French company is valued at five times higher value than the two Swedish companies together. The conclusion from this review is that possibly Swedish companies are maybe not so “street smart” – they use Swedish advisers who primarily act in their own interest in a small Swedish biotech capital market. Many companies themselves, and to some extent advisers too, seem not to think in terms of what the author calls “Anglo-Saxon thinking” where you prioritize vision-based communication, communicate value creation, emphasize looking bigger/better than you might be, seek international capital and board representation, leave room for some limited opportunism, plus emphasize that the CEO must promote the company AND the share price, and also own a relevant equity position, and that the owners should generally avoid appointing board members who only want to minimize risks. In general stock market terms, maybe a CEO should be careful in having a view on the share price, but in biotech this is the company’s most important currency for growth.

The above shortcomings often lead to Swedish listed biotech companies having lower valuation than elsewhere, lower availability of financing and a lower share of international capital than could otherwise have been the case. It becomes a vicious circle that leads to lesser opportunities to develop platforms and pipelines. With weaker pipelines, companies become weaker, find it more difficult to find capital and become less attractive for high bio-dollar partnerships or M&A. Many Swedish biotechs do not have the financial strength to develop more than one product for one disease from their platform. This makes it difficult to get Big Pharma to see the underlying value, and the owners then rarely get paid for it (platform value) in business deals.

Basically, we have a fantastic scientific position, but we are probably too complacent to realize that we need to cooperate more internationally and take on more international impressions to secure a supply of capital, especially to fund our smaller biotech companies.

“At perhaps the most important European partnering conference this spring, BIO-Europe Spring, around 15 out of 82 Swedish-listed biotechs participated. If you look at the agenda, there is not a single speaker from anywhere in Scandinavia during the four days.”

At perhaps the most important European partnering conference this spring, BIO-Europe Spring, around 15 out of 82 Swedish-listed biotechs participated. If you look at the agenda, there is not a single speaker from anywhere in Scandinavia during the four days. Lack of continental European network? These simple statistics are maybe telling us something?

By Hans Engblom, private investor in biotech in addition to twenty professional years previously in venture capital