In the current economic environment companies are faced with increased pressure to manage cash and meet investor expectations with tightened budgets. Life science industry CFOs, as a recent survey and webinar reveal, are looking to preserve and generate cash by making their companies more efficient and building partnerships while confronting the industry’s talent crunch.
On the back of its 2023 BDO Life Sciences CFO Outlook Survey, which polled 100 US Life Sciences CFOs from companies with revenues ranging from USD 100 million to over USD 3 billion, BDO United States, the American branch of the BDO network of advisory firms, together with BioNJ, the trade association for New Jersey, brought together industry CFOs to discuss the trends identified in the survey at a webinar entitled ‘What Life Sciences CFOs Need to Know in 2023‘.
The CFOs surveyed agreed that the industry is evolving and although 2022 revenues remained strong for most (52 percent saw an increase in revenue and profitability in 2022), their priorities are preserving and generating cash while looking out for deals and partnerships to secure new assets, build production synergies and secure funds. In addition, the poll revealed that the life sciences industry’s talent crunch remains a major concern.
While we continue to invest and grow, we try to remain efficient to generate the next round of capital to invest
Bob Mecca, senior VP of finance, BeiGene
Over the past year valuations for life sciences companies have declined and investor funding has slowed, especially for early stage biotechs. CFOs claim they are feeling pressure from investors with 72 percent of the survey respondents claiming that investors are now asking for more product information and financial data and 50 percent stating that it has become increasingly difficult to secure new funding. As a result, CFOs are pursuing strategies to preserve and generate cash.
During the webinar, Bob Mecca, senior VP of finance at oncology biotech, BeiGene, said the company was in a strong cash position but nonetheless kicked off a financial discipline initiative in January 2022. “While we continue to invest and grow, we try to remain efficient to generate the next round of capital to invest,” he said.
Susan Blum, chief financial officer at Melinta Therapeutics, a firm focused on the development of broad-spectrum antibiotics for antibiotic-resistant infections, said the company was also focusing on driving profitability and cash flow by controlling operating expenses and focusing on “how can we streamline, automate and invest in systems that will leverage efficiency in the future.”
“We went through a pro-active re-alignment process,” said Brian Lenz, chief financial officer at plasma derivatives company, ADMA Biologics, a process that has involved what he called “a hard, disciplined look at expenses.”
Some of the specific cash management strategies CFOs are looking at are outsourcing. 46 percent of the survey respondents said they were outsourcing functions such as process development and manufacturing. “The collaboration with our partners [contract manufacturers] has been key for us,” said Daphne Quimi, chief financial officer at rare diseases biotech, Amicus Therapeutics. In contrast, ADMA Biologics, said Lenz, who bought their partner’s production facility in 2017, has set up an efficiency initiative to yield more margin from the site.
Moreover, CFOs have also had to confront supply chain issues, with 28 percent of those surveyed complaining of inadequate manufacturing capacity and 19 percent of a shortage of raw materials. As a result, to build their capacity and flexibility, companies are looking to develop strong relationships with their existing CMO/CDMOs and diversify suppliers. “Flexibility and collaboration are key,” said Blum. “We are very thoughtful about second source to allow for the most flexibility as possible going forward,” she added.
Transactions and Collaboration
[Collaboration] is a key element of our strategy
Susan Blum, CFO, Melinta Therapeutics
As initial public offerings (IPOs) have declined, fewer companies are going public. Instead, they are turning to partnerships and M&A transactions to garner access to cash and data. 46 percent of the CFOs surveyed said they would increase investment in M&A if economic conditions worsen while 32 percent said they are planning a transaction in order to preserve/bring in cash. 45 percent said they have plans for a licensing/collaboration agreement in 2023 and 71 percent of the survey respondents with revenue between USD 50 million and USD 500 million said they were planning a collaboration agreement.
“[Collaboration] is a key element of our strategy,” said Blum. “We are always looking at opportunities,” Quimi agreed, adding that for struggling biotechs, collaboration agreements offer an opportunity for participating companies to “help each other out in terms of their balance sheet and innovation.”
There have been a number of companies that have experienced reductions in force so I do think there are people out there looking for new opportunities
Daphne Quimi, CFO, Amicus Therapeutics
One of the key areas where CFOs expressed their concern was the industry’s talent shortage and retention challenges.
While 29 percent of the CFOs surveyed said that access to technical expertise was one of their top concerns some CFOs are optimistic that recent layoffs at larger companies may lead to some increase in talent availability. “There have been a number of companies that have experienced reductions in force so I do think there are people out there looking for new opportunities,” said Quimi.
Others see the remote mentality hold over from the pandemic as an advantage to finding and retaining talent. “We hire where talent is,” stated Mecca, claiming that the policy has allowed the company to not be restricted by geographical area. “Leveraging a flexible work arrangement has helped us recruit top talent,” he continued.
In Lenz’s view, ADMA Biologics recent retention programme has helped to reverse the 20-30 percent turnover rate the company experienced during COVID. He agreed that working from home flexibility is important, but bringing employees together regularly and “making sure you celebrate successes” were also key factors to talent retention.
Blum brought forward the importance of company culture: “We are focused on the culture of the organization, regularly survey employees and take the responses to heart,” she asserted.