Farbman discusses the struggles that pharma companies are facing when trying to raise funds and how this is impacting IPOs.
When it comes to the financial side of the life sciences industry, 2023 was a difficult year. After the pandemic brought a lot of interest and money to the industry, many companies struggled to raise money this year. Seth Farbman, chairman and co-founder of VStock Transfer, spoke with Pharmaceutical Executive about the trends he saw this year and what he expects in the coming year.
Pharmaceutical Executive: What trends are you seeing with pharmaceutical and life science-based IPOs in the last year?
Seth Farbman: I always tell people that if I knew those answers, I’d be in investment banking instead of doing what I do. I run a stock transfer agency which means we deal with the shares back and forth between the company and the shareholders. We sit in a unique position because we work with about 800 companies and our sweet spot is dealing with IPOs. For us, a deal is a deal and not necessarily worried about focusing on biotech or pharma. As a whole, however, the IPOs have been down by more than a third. From a biotech and pharma standpoint, we do have a lot of clients that fall into those categories. We’re seeing that they’re struggling to get money because investors seem to want to see companies that are at a later stage of progression.
Maybe three years ago, companies that were just starting out had people that were eager to invest in them and buy into the dream. Now, because of the hesitancy, investors want to see companies that are further along in the process and companies are struggling to find the initial capital.
PE: Where have they been finding this capital?
Farbman: They’re knocking on doors. They’ve had to resort back to everything from angel investors, crowd funding, and different mechanisms to get tranches of capital instead of the IPO, which was being able to raise $50-100 million at a time. Now, they’re forced to remain private longer, which means they have to find tranches of capital at lower amounts. That’s a struggle, because companies want to know that they have enough funding to last throughout testing and clinical trials.
PE: What lies ahead for pharma in 2024?
Farbman: We are seeing some trends, and I don’t know if this is from bankers, investors, or if it’s just overall buzz, but there’s a leaning towards some of the weight loss companies. We are also seeing a strong interest in foreign issuers. We’ve always dealt with foreign IPOs and companies who are looking to list on the NASDAQ. In the last six-to-seven months, we’ve had an overwhelming interest from places such as Singapore, Malaysia, and Hong Kong to bring those companies over to the US.
PE: Is the market returning to a pre-pandemic state or a new state?
Farbman: I don’t think we’re ever going to see it like pre-pandemic, where it was very healthy for IPOs. Anyone that was remotely connected to that industry certainly benefited. We were looking at a spark of the IPO industry coming back when everyone was looking at the Instacart or the Johnson & Johnson deals, but I don’t think those deals provided the ignition that we were all looking for. If those deals took off, they could have set the pathway on fire. Instead, we’re back to moving slow and steady, depending on the company, the valuations, and the story that’s being told.
I see 2024’s first quarter starting strong, but I don’t see everything being overly strong again.
PE: What are the key considerations for investors and companies looking to go public in the current market?
Farbman: From speaking to CEOs day in and day out, I’ve learned that companies need to get better at story telling. I don’t care if they’re in biotech, pharma, or medtech, they have to find a way to clearly tell their story so that it resonates both with the institutional and retail sides. When you’re dealing with biotech and pharma, they must distinguish themselves and explain why somebody should want to be looking at or investing in them now. If it’s just a run-of-the-mill story, the average investor or fund is going to say “come back in six months” because there’s no fear of missing out.
A lot of CEOs who are in the market now and need capital must explain why time is of the essence.