A Steadying Force in C-Suite: The Changing Role of Biopharma CFOs

COVID-19 pandemic, the challenging capital-markets climate in biotech, and a more innovative and specialty treatment focus has increased reliance on the finance arm as a key strategic cog. 

Over the past three years, the pharmaceutical industry has gone through several impactful changes. During the early months of the COVID-19 pandemic, investors flooded the industry with money, allowing new companies to emerge and conduct multiple rounds of clinical trials while still being confident that more funding would be available. Over the past year, however, things have changed and funding is harder to come by. This has put the role of chief financial officer in the spotlight.

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Morgan Brown is CFO at Clene, a clinical-stage biopharmaceutical company working on treatments for neurodegenerative diseases. According to Brown, life sciences organizations are searching for new qualities in CFOs.

“Companies are looking for more contribution from the finance team on the whole, and the CFO specifically to be more strategic in nature, to really partner with the other c-suite executives and help them effectively operate the business,” he says.

Brown also elaborates on how the changing industry is impacting the role of the CFO in ways not directly connected to finance. “Although not specifically related to CFOs, I think the distribution of drugs isn’t going to be the same old retail-pharmacy model that we’ve seen in the past,” he explains. “It’s going to be more innovative and specialty pharmacy-based and at-home delivery.”

Justin Thacker, CFO at Aristea Therapeutics, says that the role has changed quite a bit over the past three years, with the past 12 months impacting the job significantly. “With the pandemic, obviously, working remotely has changed significantly for me and the teams that I’ve been involved with,” he tells Pharm Exec. “[Though] we were always moving to more automation, the pandemic pushed that along quite rapidly.”

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Shane Kovacs, CFO and chief operating officer at Olema Oncology, believes there’s been a “dramatic shift in the tone of the capital markets as it relates to the biotech sector.” This can have big implications for CFOs since access to capital plays a large role in the success of biotech companies, Kovacs notes, and the past decade saw one of the largest booms the biotech sector has ever seen. Unfortunately, things have changed over the past 12 months.

“[As] we have witnessed across many historical periods of enthusiastic expansion in other industries, the pendulum likely swung too far in the positive direction by early 2021,” he says. “There were many examples of new companies being formed by licensing technology and IP out of academia that then catalyzed on the relatively easy access to capital with successive private-round financings followed quickly by an IPO. Pre-money valuations for biotech IPOs that historically struggled to achieve the $200 million mark were now going public with valuations exceeding $500 million and, in some cases, greater-than-$1 billion unicorn valuations.”

Kovacs explains that these companies were able to grow very quickly due to having access to the capital.

Pharm Exec financial columnist and Editorial Advisory Board member Barbara Ryan recently described how the biotech industry peaked with investors in early 2021. The previous year, biotech and biotech IPOs provided consistently large returns for investors. Since that time, however, the biotech industry entered the longest bear market in its history, leaving many companies struggling to find further funding.

Investors are learning the difference between biotech and the tech industry, Kovacs points out. New technologies must undergo periods of trial and tribulation before being approved, and many new biotechnologies never make it to the approval stage. This creates a much longer business cycle than the tech industry and requires more capital before becoming cash-flow positive.

“Over the past 12 months, we have, unfortunately, seen a complete reversal of this investor enthusiasm for the biotech sector,” says Kovacs. “Valuations are now at all-time lows with many companies trading at or even below their cash balances. New equity offerings and IPOs have fallen off a cliff. The big question looming over the heads of biotech boards and management teams is, ‘How long will this last?’”

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Shoreline Biosciences’ CFO, Vanessa Jacoby, notices similar trends as well.“With the volatility of the market, I think capital is becoming sparser and you have to, again, navigate the trade-offs,” she tells Pharm Exec. “What is important to your organization? How do you focus? What are the products that are more likely to make it to the clinic, and what are the unmet needs that we’re trying to solve here?”

According to Jacoby, due to the volatility of the markets, CFOs are focused on making sure that their companies are well-resourced and can deliver the goals of the wider organization. Even if the markets become less volatile, those goals will remain the same.

She adds that the pandemic likely caused a good amount of capital to flood the industry. Over the past months, however, interests have changed, and she believes that many generalist investors have moved on to different sectors.

“It’s a cyclical process,” says Jacoby. “You have a lot of resources, and then they decline, and you have to do the best that you can, always with the goal in mind to bring drugs to patients.”

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