Biotech Finance And Investor Update With Independent Board Director Allan Shaw

0:03Allan Shaw: Welcome back to the Business of Biotech. I'm your host, Ben Comer, Chief Editor at Life Science Leader. And today I'm happy to have Business of Biotech all-star Allan Shaw back on the show to talk about how investors are thinking about risk and value creation as the financing environment continues to improve. Alan is a five-time public CFO and a seven-time public company board member, and he's currently an independent director at Avexia Therapeutics and CalciMedica. We'll talk about how investor behavior is changing as conditions improve, how company leaders can or should adapt their development strategies and business priorities to capture new funding opportunities, what differentiation means to investors, how to balance financing tradeoffs and the changes company managers can make when they're stuck below the funding amounts needed to move forward.

0:56Allan Shaw: Alan, thanks, as always, for coming back on the show. It's great to have you. Thanks, Ben. It's always a pleasure and happy to be here. I look forward to our discussion. Well, is your sunny disposition, Alan, due to the fact that the biotech financing environment keeps on getting better? There are more IPOs going forward. The deal space is active. All kinds of transactions are being announced on a daily basis, it seems like. What has changed? And what are investors looking for today that might be different from a couple of years ago? No, you're absolutely right. Today, it's much better than a poke in the eye.

1:40The environment is doing fundamentally a lot better, and people are making money. It's interesting how just pesky details like making money can really change the sentiment around it. I think M &A has been a really big driver on that. There's been a great, I think the numbers for last year have already been hit at this point in time. And that's providing money that's getting recycled in and being put to work. And you're really starting to see that velocity in the marketplace right now. But what I would call out and certainly distinguish is that the availability of capital is fundamentally different from the accessibility of capital.

2:19You know, more capital is engaging. That's for sure. And there's also a lot more financing alternatives. Public market pathways have reopened, including the resurgence of reverse mergers. So things are hitting on all cylinders and that phenomena is not lost. You know, I'm sorry.

2:40Allan Shaw: I was going to say, go ahead. The challenge is not finding investors. It's the challenge is giving them enough confidence to invest. You know, it's all about conviction. I was just going to ask if this general improvement in the financial conditions is a tide that's raising all boats or is it unevenly distributed? You know, if you look at the XBI, you know, it's getting back to levels that's reflective generally. I mean, we can talk about what the XBI is and what the XBI isn't. You know, it's weighted to larger cap companies. So those that are getting washed away are not going to be necessarily as much impactful on that index.

3:26But on an index level, there is a little bit of a boat rising all tides. But I think the bar that investors have really remained high. They haven't compromised on quality, but they're looking for things that are different and that there's multiple ways to win. You know, I think the onus now is on companies when they reach the public markets through different combinations of the risking strategic validation valuation discipline. I think, you know, depending on who you are, you need to think about what is available to you. And we can certainly get into some of those details. But, for example, an early company earlier in development may compensate with unusually strong validation.

4:14you know, through a partner. A partner can certainly do that. But there isn't one formula, you know, can we raise capital? Who is our logical investor? And where do we need to believe what's the most efficient way to get there?

4:28Allan Shaw: When you talk about valuation, to the extent that, you know, it can be controlled by managers, what is the, I guess, what is the right way to think about valuation as a company right now? And has that changed? You know, cost of capital is certainly better than it was. And I'd say valuation, public companies are different than how you might consider valuation for private companies, which is a lot more subjective. And it's interesting because people look at comps and I think looking at comparables is certainly a relevant way of comparing alternative situations. And as one investor once put it to me, you know, you're a blueberry and today this is the price of what blueberries are.

5:21Tomorrow, yesterday's price doesn't matter and tomorrow's price doesn't matter. It's today's price. So I think comparables is certainly one to look at. You know, you can certainly look at the underlying potential market opportunity and look at it this way. I'd say generally when I do valuations or get involved with it, you like to triangulate and look at different measurements. You know, you look at precedent transactions such as mergers and change of control. You look at DCF calculations. And And lastly, you know, you focus on, you know, comps as well. But I think for private companies, comps is probably the best.

6:03And what people sometimes worry about or hold out on is on their valuation. And that's where it becomes even more subjective because, you know, it's funny. Somebody says, oh, my pre-money value is$250 million. I said, oh, is it? and I said, oh yeah, we're talking to everybody. And, but, you know, has anyone actually got into a conversation with you on your value? You know, no one, you know, what I have learned is that most people will be very polite. They're not going to engage you on a sensitive subject unless they want to. And if they're not interested in engaging, they're never going to get to those sensitive questions.

6:44You know, I was talking to a banker where I was involved or diligencing an opportunity. And, you know, it's very, very clear to me that the valuation was disconnected from what where the company was in reality. Right. This also requires a level of intellectual honesty where you have to be honest with yourself. It's not just because you have this and this company sold for three billion. So therefore, I'm worth 250. You know, it's really comes down to risks. Right. And how you evaluate those risks, how you mitigate those risks. and that's how you you know you really generate conviction at the end of the day or build conviction uh by taking away taking away their excuses yeah you know it's interesting about

7:31Allan Shaw: comps anybody you know who's ever had their home appraised has you know has probably you know thought you know these these other comps are not the same they're not on the same block you know they're not the exact same size. There's all of these sort of other factors that go into, you know, what what a home might be valued at. Basically, like I'm not a blueberry, you know, I'm really not. When the comps, you know, tend to point to the fact that that you are. And I imagine it's even more difficult with comps and biotech. But I don't know, maybe not if you're maybe working at the same drug modality in the same therapeutic area?

8:13Allan Shaw: Or is it even, do the comps even go beyond that? Like what, what kind of factors, I'm just curious, you know, what kind of factors would be, would go into a kind of comp for a, you know, an early stage biotech, let's say, that's trying to put forward a reasonable valuation? You know, you'd be looking at, you know, as we're aware of, you know, there's a lot of target crowding and people doing a lot of the same things. And we can talk a little bit about differentiation later on. So, you know, in terms of finding comps, you know, sometimes you can find more than you care to. Yeah, right. But, you know, I would say, you know, keeping it at 20 ,000 feet, you know, take an oncology company that's in phase two, you know, and you can look at companies that have had proof of concept.

9:04You can look at those that haven't had proof of concept and see where you fit into those buckets. You can look at whether or not, you know, what's the probability of success? Are you doing something to enrich your patient population? Are they doing something, you know? So I think you can look at some of that. And I think you can't get too hung up in modality because sometimes you look at, well, I'm a better within the modality, but is the modality really the winning hand? Right? I mean, ADCs versus radio pharma. Take your pick. You know, I think ADCs from a reimbursement perspective work better for the doctors the way the math it works right now.

9:42Maybe that will change. But, you know, you got you got to be mindful of some of those particular details.

9:49Allan Shaw: When investors are looking at the market now and even in the past, are they are they evaluating the same risks, Alan, or does what matters change, you know, depending on things like stage of development for a company? I assume that it would. No, it's really a thoughtful question. You know, I think the short answer is, you know, absolutely not. You know, one of the biggest mistakes that companies make is assuming that there's just one investor story. And it's really not one size fits all. You know, that assumes that all investors are homogeneous. You know, there's much of a heterogeneous group.

10:31Maybe there's gleaming qualities about them, but they are heterogeneous at the end of the day. So it really comes down to really understanding who your next investor is. And then with that kind of information, you can kind of reverse engineer knowing what exact questions your next experiment is going to need to answer. And I know that seems like a glimpse of the obvious, but when you think a lot of times you see people putting square pegs in round halls. You know, if you take a step back, you know, you got to really look at the different types of investors, right? You have seed or angel investors, and they're generally focusing on a founder or level of pedigree.

11:16Perhaps there's an addressable market, something sentimental or an advocacy type of angle on that. You know, then you've got venture. They're much more focused on the biology, as you were saying. You know, sometimes they'll go earlier. Sometimes they'll want to look at more of what's the mechanism of action. Is it differentiated from what else is out there? And what are the advantages associated with that differentiation? Going back to what I touched on earlier, you know, a biomarker defined population is one that, you know, is really, really important. And then in the translational evidence. So, you know, those are things that they're evaluating and you need to be able to be sensitive of where you are in development to what you can do and what you can't do in terms of positioning yourself.

12:01You know, crossover investors, you know, they're getting these guys, the traders, you know, with some time horizons. So they're really looking at catalysts. You know, they're looking at, you know, how quickly can you get to the public markets? And what we're seeing with reverse merges now, these crossover investors are actually going public with the crossover round, which is an incredible phenomenon, which actually compresses times, saves arguably money. And, you know, right now, the current aftermarket for IPOs are performing. I think most people are happy right now. I think it's working the way it should be working.

12:37during the period of time when you were really still doing price discovery, and you're still arguably still doing price discovery after the prints. The reverse merger is a clubby deal. There's less, you know, the stock doesn't really trade. But, you know, the way they're coming out right now, I'm saying that they certainly rival IPOs as a real legitimate pathway to the markets. You know, it's funny. You reflect on things like ATMs. You know, ATM facilities were frowned upon and you were viewed as a pariah. You know, today they're a fundamental part of your cap table. You know, reverse mergers, you know.

13:18Yeah, I used to think of them as a breach of birth. But when you think about it, once you land on your feet, no one knows the difference. Yeah. And they're working well. And people are making money, going back to what I said earlier.

13:30Allan Shaw: To your point, yeah, if people are making money, that tends to smooth a lot of things over. On reverse mergers, is a SPAC a type of reverse merger, or are those two separate vehicles in your view? No, it's really, really thoughtful. What I would say are SPACs are fundamentally a reverse merger where you have somebody promoting this, effectively a middleman who's looking to take a vague out of this. Are those going to be popping back off too? But we're going to see some SPACs coming back in. Funny you should say that. They're already starting to bubble a little bit. And I would say they're different than past SPACs.

14:15And I think it really speaks to what I'm seeing as a shortage of cadavers or zombie companies for people to merge into. So right now, if you've got a story of interest with catalysts, you can probably do a pipe, but the investors are going to want this to be in conjunction with a public listing. So what you're seeing right now are deals that are coming together where they're codependent. And once you have the cadaver or the zombie company, the shelf, and you've got your pipe, you consummate those transactions simultaneously. simultaneously. So that's really how those transactions are going down.

14:59And in my view, you know, depending on whoever you're talking to in the spectrum of investors, you know, it boils down to whether or not there's enough evidence today that they can shape the program or invest in that program, or whether or not they're waiting for someone else to do it and further de-risk him.

15:19Allan Shaw: Right, right. I want to get back to something that you said just a minute ago about knowing or hoping you know who your next investor is and how that might influence your development plan and the various milestones involved in that plan. But before I do, I just want to run something quickly by you. I had Omar Khalil from Sante Ventures. He'll be on an upcoming episode of the business of biotech. And he was talking to me about this move from biology risk to commercial risk, essentially investors wanting, you know, something de-risk, something that's in later stages that is soon to come on market, soon to make, you know, bring in revenues as a kind of slam dunk.

16:07Allan Shaw: But then I was talking this morning with Jason Godrick, who runs a family office called Godrick Capital. And he was saying that a lot of those late stage, you know, to your point about, you know, some of the reverse, the zombie companies, you know, there aren't a lot of them out there anymore. His point was that a lot of these late stage asset plays are gone, they've been acquired. And so my question, Alan, is if you think that pushes investors back toward earlier stage development programs or even preclinical company targets? Or have we not reached that point yet where there are not enough late-stage assets out there to make a quicker buck on?

16:52You know, I think it really comes down to the fact that, you know, investors have choices and they want their money to work. So things that are lacking catalysts, their attitude is I can invest in this company and this company, and I can come back to you when you're relevant. So that's certainly something that I think is key. I think because the IPO or the public path had been so badly hindered for the last several years, you know, there's been a really, really, really frustrating backlog of companies that have gotten maturing and de-risking. and, you know, for the most part, there's still a handful of early companies, but I'd say for the most part, most of the companies that are coming out are in the clinic.

17:45Some of them have proof of concept, but, you know, the commercial risk is, is important. I think on a couple of levels, you know, between the, and it comes down to competition and being differentiated, You know, so, you know, if you're not differentiated, you know, you've got a real problem at the end of the day on a commercial side. And, you know, I think ways to do this is through patient enrichment, biomarker identification. You know, basically what you do with that is you go from where I says, does this drug work? To immediately saying, I know who this drug works with or for. And that helps you with some of the de-risking on the commercial side.

18:33So, you know, there's – it's – because at the end of the day, commercial risk is very real. And I think we've seen a lot of companies that haven't, you know, developed drugs. But they're developing drugs that nobody wants. Right? And we've seen countless of them. And that's why, you know, from an investor's lens, if you're going into phase three without a partnered asset, you know, what's wrong with you? You know, you're kind of like on the land of misfit toys. So, you know, and you're taking risk and, you know, you need to demonstrate it. And, you know, there's examples of companies where like CalVista that, you know, people didn't believe in it and they were able to drive that and they were able to get a really nice takeout or even Biohaven One.

19:25You know, they weren't getting value at all for their for their product. And they they commercialized itself, a primary care product. So there are success stories there and the strategics don't get it, always get it right. But, you know, it's it's it's again convincing people that there's a commercial opportunity. It's all about how do you monetize the assets at the end of the day?

19:47Allan Shaw: I want to get back to or well, I want to talk a little bit more about differentiation, maybe outside of commercial risk and how investors think about, you know, or decide a company is differentiated. But I don't want to continue without first asking you this question, which is really intriguing to me, which is that if a management team understands who their logical next investor is, or at least as a small group of investors that they think would make a lot of sense to help finance the company at a certain stage or whatever it is, how should that influence the development plan and the milestones that that company pursues?

20:32Allan Shaw: You know, should it not? How does that work? You know, you know, finance is supportive at the end of the day. And I think you really need to have the clinical development team and the finance team kind of operate jointly and not in vacuums because you need to be able to coordinate your clinical strategy with your financing strategy in terms of looking at what the milestones are, really where are the de-risking events. At the end of the day, investors look at these as gates. Everyone else looks at it as milestones, but it's really removing risk. I mean, it's all about generating de-risking evidence to drive conviction.

21:21So I would basically say that it's important to ask yourselves as you embark on this, what in certainties stand between where we are today and the investor population we want to attract tomorrow? You know, it's really a reverse engineering exercise. And then you have to determine, you know, what is to that, to answer those questions, what type of evidence is needed? You know, is it safety? Is it target engagement? Biomarker validation? Dosing? POC? You know, what is competitively differentiated here? The milestones that matter is that if the risk is retired, who goes away. You know, when somebody files an IND, have you really reduced the risk?

22:16I mean, you've demonstrated some things that you're, you know, you can do certain processes, but have you really fundamentally de-risked? A lot of companies bang that chest when they file an IND, and an IND is a seminal moment for companies. But I would also say for them, But for other people, you know, it's okay. Now you've been able to be able to get answers to the questions.

22:40Allan Shaw: Right. Right. So, you know, I don't see it as a de-risking event just from that perspective. You know, I think at every step of de-risking, whether you're doing the target validation or, you know, you have to be looking at what the real inflection points does. And be honest with yourself. because also this speaks to when you do your next round of financing, you know, how do you adjust your value? Going back to your earlier question, you know, if my last round was, you know,$100 million,$150 million post money, you know, and I've now done these de-risking events, what should be my step up? You know, is it 20%, 50%, 100 %?

23:28People will have a lot of views. And that becomes more relevant on a private financing scenario. The publics, again, you have a different baseline. But people then, again, look at valuation relatively. And, you know, what I've learned over the years is that greed is a very powerful tool. So, you know, you got to think about that. And as some wise people have told me, it's not where you start, it's where you finish. So, you know, the idea here is to be able to make people money along the way. And as you continue to do that, they'll continue to support your execution.

24:04Allan Shaw: You just enumerated several of the kinds of risks that a biotech company might have, whether it's safety or efficacy. You named three or four at least just then. And so as a as a putting yourself in the perspective, I guess, of a company leader, how do you decide, you know, which problem to solve first? Which risk is going to be the most important to get you that next financing round? You know, you're prioritizing your problems, essentially. But how do you think about that? How do you do it as a company leader? You know, to me, it's about killing drugs early, right? You need to understand that time is money and time is the enemy.

24:57And if you spend time developing a drug, that's going to go nowhere. Not only are you wasting time, you're off some misallocating resources and it's going to be more of a significant hiccup down the road. You know, if you make a wrong turn and continue going down the road, it's still a wrong turn. So, you know, to me, you've got to ask yourself, what is the killer experiment? What will let us know whether this dog hunts or doesn't? And, you know, I've seen stories. I'm sure you've seen it, too, where companies will spend$30 million on a study to confirm something that they already knew or believed in.

25:39Yet the big question still remains unanswered. And then they don't understand why they can't raise money. So you really need to, again, come back to understanding who your audience is and know who that is. And then within that, I think.

25:55Allan Shaw: Your investor audience, you mean? Yeah. I think, again, look at this all through an investor lens. Yeah, yeah. And I think people fall in love with their baby. And no one is ever going to tell you they have an ugly baby. So that's just the way the world works. Yeah, just like no biotech is going to say they're not. We're just like everybody else. We're not differentiated at all. You know, nobody says that. Everybody says the opposite. it. What aside, you know, how do investors think about a truly differentiated company? I mean, does it have to be, you know, targeting a, you know, previously undruggable pathway, a brand new novel mechanism?

26:38Allan Shaw: But aside from those kind of obvious differentiators, you know, what else are investors looking at to really determine if a company is truly differentiated? You know, I think they're really looking at whether or not it's going to be first in class or best in class. OK. You know, something that, you know, you're you're you're in the front. You know, that obviously generally means novel. I think what I've been seeing is that there's a lot of interest in by specific antibodies these days. So I think, you know, they're looking at certain things that have certain levels of risk profile that can overcome perhaps prior problems with earlier generations of drugs that may have been trying to target one target at a time, but being able to do something to hit two targets simultaneously on a bivalent manner can resonate and reduce risk.

27:39and what I've been seeing in the IgG market is an incredible proliferation of companies in the space and everyone's coming up with a differentiated development plan. They're going after these indications. What is the best way to go to the market? So, you know, and we saw that even with the checkpoints, right? You saw, you know, everybody came up with different development strategies. Merck came up with the right one. BMS came up with the wrong one. And the rest be history there. So, I think in terms of the differentiation, it can be certainly related to modality. It can certainly be relative in terms of the therapeutic indication.

28:20You can also get involved with dosing ease. You can also talk about titration, you know, certain disease types, you know, the profile of patient, you know, a complicated titration period, you're not going to get compliance. So I think there's different ways to look at it. Also, what I think further complicates the equation these days is China. You know, it's to me, you know, you're out there trying to raise money, you're talking to investors and there's a new revelation every day in terms of what's coming out. Um, so, you know, I think what China has successfully done, I think, I think there's more to come there, but I think certainly what they've been able to do is compete in the, uh, me, me better category.

29:08And, you know, those, those are, you know, incremental positives, but that's not what I'd call differentiated. That's not going to move the needle. So, you know, I think what you, and I think because of that dynamic, right? In the old days, if you were fourth to market, fifth to market, you know, you could still be a blockbuster. Look at the TNF inhibitors. Absolutely. Right? But now with this advent of China and that there's many more copycats or me bettors, you know, I think you're fundamentally positioning yourself to be a branded generic before you even get out of the gates. So I think that underscores the need for differentiation and trying to come up with something that's going to be impactful for patients.

29:58It's all about being relevant at the end of the day. And those would be, you know, unmet needs as well. You know, something that there's a greenfield opportunity.

30:09Allan Shaw: Yes. China, you know, the thing that that I think about when I think about, you know, Chinese assets, de-risk, some amount of clinical data, cheap to buy and develop in a new company or under the auspices of a larger pharmaceutical company. It seems like, well, I know that that's making it more difficult for some of the early stage, you know, U.S. and European biotechs to get funding just because, you know, it's going to be a longer a longer trail to to money, to an exit versus, you know, something that can go straight into clinical trials that, you know, already has some data, et cetera, et cetera.

30:50Allan Shaw: For those so for those companies that are still struggling, haven't been able to clear that financing bar to get to the next milestone. How does management think about that? Like, what do they what do they change, you know, to to stay alive, to to make it to that next fund fundraising round? You know, I think like going to a doctor, you have to kind of diagnose your situation before you can take the corrective action. And I think people, you know, I think sometimes people just don't. I think there is a generalization. A lot of these companies have blind spots to the competitive landscape. You know, and I'll call out an example of this without naming names.

31:43But, you know, I saw a company where their whole, their big market drive or big market opportunity, They had some other angles, but not as big. It was all about dealing with the lymphodepletion associated with ex vivo CAR-T therapies, which, yeah, if CAR-T can scale, ex vivo can scale. And there's a couple of examples of that scaling. But, you know, the question mark I had is, well, in vivo CAR is emerging right now. And for at least the companies that I've seen, depending on their technology, you can avoid the whole lymphodepletion process and go directly into the patients. So if that's if that if in vivo car takes effect, their whole business model doesn't that doesn't fly.

32:34Allan Shaw: You have to be you have to see that coming and pivot before, you know, you're kind of irrelevant with an ex vivo car T. Oh, absolutely. And I think what you also do, right, this, you know, and people only have the self-awareness, they'll go into investors or try to pitch that to investors. And they're like saying, what's going on here? You got to get your head out of the sand. Right. So, you know, I think, I think they're, so you've got to understand what your problem is. And it could be the fact that you're one of 20, right? We've seen that with the Ex Vivo Carti programs. We had over 100 of them going at one point in time.

33:16Wow. Talking about lemmings. So, you know, we've seen this movie before, but it's about credibility, right? And, you know, are you undermining your credibility based on what's in your presentation? You know, I think you have to have answers to these questions. And I think for people who are having a problem, you've got to kind of, again, at the risk of overseeing it, is reverse engineer. You know, who do you think your investors are? What are they looking to see? And where do you map relative to that? Is there a gap? You know, also what I would say is a common problem is that I see people have eyes that are bigger than their bellies.

34:02and they want to develop more things than they should. And you got to stay focused and you got to crawl before you walk. And you got, again, coming back to de-risking. It's like peeling an onion. And you got to then calibrate it to who you're talking about.

34:18Allan Shaw: Yeah, I know. I mean, I guess it speaks to your earlier point, too, about, you know, ending a program quickly, being willing to kill your darlings, you know, if the writing is on the wall that, you know, this is not going to be the way forward. Even if, you know, you've made some early investments, you've developed it to a certain point, you can't keep dumping money into a program that, you know, investors and no one else wants, right? Oh, absolutely. And, you know, there's not just one path. You know, in some cases you might need more clinical data, right? Something that de-risks that thing. Demonstrate POC.

34:55Got to be careful in oncology that people are looking for that phase one isn't safety. You got to be very careful with your patient selection there. You know, you can kind of blow a program if you don't get that one right. You know, strategic validation, you know. Going back to the high school dance analogy, you know, people look at you differently when you have a dance partner versus when you don't have a dance partner, right? You know, before, where's the hole in the donut here? So, you know, it changes the way you look at things. And it changes the way you can raise money because I do think validation in the company you keep is really helpful.

35:36And, you know, strategic validation on an indication where people don't view the commercial opportunity as being significant enough is can get in the way of raising money for something that's a true unmet need.

35:51Allan Shaw: Sure. You know, so, you know, it's a kitchen or the egg. You know, in that instance, you know, my humble suggestion is, you know, you try to see if you can find a strategic partner to help validate that. And, you know, again, it goes to the point that you can't do everything. So you should focus on what you can do. You should focus on what you do very well and understand what you don't do very well. And perhaps there's a better way of getting it done. And I think working with a partner, too, compresses timelines. You know, as you've heard me quit before, the shortest distance between two points is a shortcut.

36:31Allan Shaw: Yeah, right. Well, yes. And, you know, for startups and early stage companies, a partnership with a large pharmaceutical company, even a minor partnership, a minor collaboration can meaning meaningfully raise the visibility or a company's profile to other investors, open up new financing opportunities. You know, and that's easy to say. Everybody's like, sure, I'll just get it, you know, get a big pharma partnership and I'll, you know, head straight to the bank. But it's not everybody can score those kinds of partnerships. And so I'd be curious, Alan, to hear what you think about maybe like a BD department might be able to do to kind of improve a company's chance at scoring a partnership or what a company can do to better align itself for a strategic, you know, or or a big pharma deal.

37:29You know, the way you said that kind of, I think, reflects the way a lot of people preserve, view the strategic deals as almost like a financing event in some respect, right? And, you know, it can be. Usually when they become financing events, you know, it's probably at your cost.

37:50Allan Shaw: Oh, okay. But I think, you know, it can be mutually, it doesn't have to be mutually exclusive. You can have both associated with them. But, you know, I think the partnering really, I think, as we were saying, really enables a level of validation, you know, and you can also, part of the program helps you, depending on how you structure that, helps you outline what your milestones are as well. because it's part of the nature of the agreement and gets all alignment on that. You know, and basically what you're leveraging is that a sophisticated farmer has looked under the hood and they want to be associated with you.

38:34And that's pretty powerful. And if you've got a program that's feeling a little unloved from the investors, so where it's maybe even been relegated is, you know, something that's sitting on the shelf, You know, being able to work with a partner helps you unlock value that might otherwise not be unlocked. And I think also when you're talking about companies with platforms, you know, you know, a lot of platforms have a lot of different therapeutic utility. And again, you can't do everything. You know, you carve out, you know, what is your core area? And then you can use strategics to help validate your platform in non-core areas and unlock further value.

39:15More importantly, on their nickel. Right. Right.

39:21Allan Shaw: I wanted to ask about maybe types of capital and how companies should think about that. There are lots of different kinds of funding. I'll just use the example of, you know, diluted funding to get runway to get to the next value inflection point. I mean, how should how should company leaders think about that trade off? You know, sometimes companies are in a position where they just need cash in the door, you know, to keep the lights on. And so, you know, they're not in a position to say, well, you know, we're going to, you know, skip this diluted fundraising and hold out for some non diluted capital.

40:03Allan Shaw: You know, it may just not be time or the ability to do that. But for a company that's in a position that is, you know, wanting to get wanting to extend the runway, wanting to get to the next milestone, how do you think about the kind of capital necessary to do that? You know, I think it comes down to runway management. And, you know, I think your runway is actually a negotiating asset and you have to protect it as such. You know, if you're talking to an investor or talking to a strategic and you have six months of cash, you're kind of going to know how that conversation is going to go. But if you're having a similar conversation with them and you have, you know, a year and a half of cash, it's a much different conversation.

40:49It allows you to run a more thoughtful process. You're not desperate. And you can leverage your position. And usually when you have more than one person chasing, you can drive up your value quite significantly. You know, so I think it's about managing the leverage. And I also think when you're thinking about the sizing of your financing, as you touched on, you really got to understand what you need to get to your next set of inflection points or milestones or gates, depending on the way.

41:23Allan Shaw: Yeah, because if you come up short, you're stuck there, right? Absolutely. And you don't want an emergency bridge that can be a bridge to nowhere if the incremental capital doesn't get you to genuine milestones. And unfortunately, I've seen that movie more times than I like. And, you know, you got you got to think holistically about this. And, you know, people fight dilution. But, you know, candidly, you know, I've never seen a company go out of business from dilution. I've also never seen a company lose value from dilution, from raising money, right? Raising money, companies don't go down in price, typically.

42:08So, you know, for those reasons, you know, it's kind of funny how this is always kind of people are pushed on that. And, you know, they'll fall on their knife rather than creating value. And if you're spending$30 million on a study that's going to create more enterprise value for you at the end of the day, you know, that's, well, yeah, you have more dilution mathematically. But economically, you're going to be much happier if you do it. And this is biotech at the end of the day. And things take longer. They cost more. And, you know, you've got to rip the Band-Aid off. You know, is my personal feeling on that.

42:50The objective isn't survival. It's financing the company to an event that changes its value proposition.

42:59Allan Shaw: I'm really glad that you brought that up, Alan, and I'm going to risk asking a stupid question here. But is non-dilutive financing always better than, you know, some degree of dilution? Is that just always the case? You hear people, you know, really trumpet the fact that they had non-dilutive financing, you know, from a family office or whatever. But is that always better? And it's probably less funding a lot of the time, I would suspect. But is it always better? Is non-dilutive financing always better than financing? Understanding what the definition is and, you know, if it's diluted, it's not all your money, right?

43:39Yeah, I think it really depends on what you're specifically looking at, right? You know, I would say royalty or debt is non-dilutive financing, but they come, they imperil the company relative to execution.

43:53Allan Shaw: They give it on the other end, right? Yeah. So, so you can raise money non-dilutively and it depends, you know, if you're a company that's generating cash flow, if you're launching a product, you know, there's an argument that those are much more cost effective ways to manage your cost of capital to launch those, those, those, those types of things. products. But I would also say that some people would use strategic deals, partnering, licensing as non-dilutive financing. And from a literal perspective, you're not changing your cap table. So you're not diluting your shares. Again, very literal, but actual and factual statement.

44:38But what you are doing, and this is what gets seems to get lost in the fine print, is you are diluting the economics of that program. So, you know, you can rationalize it as you might. You might have ownership in a, you may maintain and preserve the ownership of your stakeholders in the company, but the company isn't worth as much anymore. Right. Right. So, you know, so I think non-diluted financing with strategics, you know, can be somewhat overstated.

45:12Allan Shaw: Okay. All right. Yeah, I just it seems like it appears more and more in the press release on a transaction. And so I was wondering if there's anything like, you know, subtext or something that I'm missing when I when I read that someone, you know, receive some some non-dilutive funding. But, yeah, thank you. Thank you for that, Alan. I appreciate it. Now, absolutely. But, you know, again, there's value in those deals and those partnerships, right? They bring manufacturing often. They can bring clinical ops. They bring a geographical footprint and even a commercial infrastructure. So, you know, again, it kind of speaks to what I said earlier.

45:50You know, these these partnerships help you focus on what you're strong at and what you fill gaps.

45:56Allan Shaw: Well, is there a playbook for engaging potential partners, you know, a kind of stage or place or time when companies should, you know, give that a lot of attention and start reaching out? Or does it really depend? You know, you want to be relevant, but you also want to plant your flag, you know. So I think, you know, trying to establish relationships with folks, you know, I guess there's no good better time to start than now. But, you know, again, you got to be relevant, you know. You don't want to be sending them what's on your whiteboard that you haven't even put into practice yet. But, you know, if you're operating, you know, I think you go, you know, establish relationships with them through board members, through the bio events and the different industry conferences get out there.

46:50I would also call, you know, bio Europe, you know, the different those different events bring in China. Now there's a lot going on there. So there's different ways to kind of get out and about and engage. But what I would caution is that, you know, and what I would embark on, too, is you want to develop credibility. So, you know, what I would certainly suggest is, you know, you outline what you intend to do and also get their feedback. Because a lot of times when you talk to these people, they will tell you what they're looking for or what they might need. So it's almost like an open book test going back to what I've been saying all along about.

47:30Allan Shaw: Like meeting with the FDA a little bit. Yeah, that too. You know, it's about how do you reduce your probability, increase your probability of success? So, no, for sure. So there is. I think those are some of the things that you can think about. Well, we're coming up on the end of our time, Alan, but given that things are good, appear to be looking better, I wanted to ask you a parting question for you to gaze into your crystal ball and let us know what you think is coming. Is it going to continue to get better? Is the IPO market, we're going to see more and more companies going public? Are we going to see, you know, more and more retail investors come back into the market?

48:18Allan Shaw: Are there some some risks, some things that could could kind of set the market back and slow things down? What do you think? That's a big question. I would say, generally speaking, I think people are feeling right now that the market is good. It's going to continue working. I think there's a real dash to the public markets. You can't find shelf companies right now, which is why I used to tax. There's a real shortage of those. So right now, the ducks are quacking. And I think they're going to continue to crack the rest of this year. You know, the election could be an upset or not. I'm not sure where that goes.

49:02But it seems like the market has generally been brushing off most things. So it seems all of that's uncertain. I would say, you know, the things that could result in a buzzkill on this is the macro backdrop. You know, that, you know, the escalation of tensions in the Middle East or any of the wars going on right now. You know, oil prices and inflationary. You know, I think we're already seeing it. You know, the credit markets are starting to get hit. Yeah. And we're seeing an inflection on the yield curve. And, you know, then that's going to. I think something to be mindful of. I actually think, you know, the, the broader capital markets are potentially at risk with what's going on in the credit.

49:49You know, we can't keep poking the lenders in the eye like we do and expect them to not change the cost of capital that's associated with those things. So, so to me, that, that's to me, what's, what, what scares me. But right now the fundamentals are there. You know, the science is good. Deals are getting done. Big Pharma is sitting on a lot of cash. They've got patent cliffs out the kazoo. And not all of them are doing what Lilly is doing by buying everything up to protect their future streams. So, you know, they should maybe take a lesson from that, but maybe a little too little too late. But so I think that those things are the factors that are going to continue to drive the sector.

50:34And there are, you know, per my estimates, quite a handful of companies. So I think you'll probably see whatever we we that's gone public so far. I think you'll probably you know, there's a good chance that we double that number by the end of the year.

50:50Allan Shaw: I said that was my last question, but thank you for that response. But it made me have to ask you one more thing, which is, you know, the specter of the Pharma mega merger. You know, we had one of those kind of floated by the Financial Times, immediately denied, rejected. We haven't heard anything more about that AstraZeneca and BMS. That was kind of universally panned, at least according to the folks that that I talked to shrink, you know, and I'm, you know, talking to more people focused on the earlier stage and startup phases of company creation and all of that. But, you know, for a number of reasons, you know, a smaller pool of buyers, you know, years or at least a year or more of integration stuff that slows down development programs.

51:44Allan Shaw: If you already have a partnership, you know, with one of those those pharmas. But I guess my question to you, Alan, was, you know, regardless of what you think about these mega merger deals, do you do you think that we'll see some some of those kinds of deals happen, assuming the market stays pretty good? Or or do you think that was a sort of false alarm and that we're probably not likely to see some of these massive, massive deals go forward? There's also the question, too, of if regulators would allow them, of course. No, that is a pesky detail. You know, I kind of shook my head a little bit when I saw that rumored transaction because I thought the non-US company was having a lot of operating momentum.

52:30I thought they were really crushing on a lot of levels and I thought doing something like that would take them out of the game. Also, their CEO has often spoken about a negative bias to those types of deals. So it seemed a little out of character.

52:46Allan Shaw: OK, so fake news then maybe? It was just an unsubstantiated rumor? You know, I think what probably happened was there was probably a public socialization of the deal. and once it was completely, people defecated on it, I think they walked it back. I think there's lots of different ways to get answers to things. I'd suspect if you go public, you do test the waters. You do an M &A, you leak it and see whether and how the market reacts.

53:21So it could have been something as simple as that. But I think there hasn't been a really large deal in a very long time. So, you know, I think a lot of this I would I would look out for is how people are managing their patent clips and whether or not, you know, you do these things to cover up other problems. Typically, you know, right. You know, again, you know, there's a lot of money to be squeezed out, but I don't think that's what people are looking for. I think people are looking for not financial engineering. They're looking for drugs that impact and improve the quality of life for patients.

53:55And I think that's that's where the focus lays, you know, and capital, you know, and capital follows conviction. And it's really management's job to to build it. If you can't build a conviction, you know, you have to ask yourself, why aren't I getting the money? Because I haven't proven it. I deserve it. Right.

54:19Allan Shaw: Well, we will have to leave it there. Alan, thank you so much for coming back on the show. I'm already looking forward to the next time we have you on. Thanks for being here. Thanks a lot. Look forward to doing it again soon. We've been speaking with Alan Shaw, an experienced public company CFO and board member and currently an independent director at Avexia Therapeutics and CalciMedica. I'm Ben Comer, and you've just listened to the Business of Biotech. Find us and subscribe anywhere you listen to podcasts and be sure to check out our weekly video casts of these conversations Every monday under the business of biotech tab at life science leader.com.

54:58Allan Shaw: We'll see you next week and thanks as always for listening