Singapore biotech startups face funding drought, in search of patient capital

SINGAPORE biotech startups are struggling through a sharp drop in funding as investors seek greater certainty of returns.

Biotech startups often go through years of research and development before they show commercial potential. As valuations everywhere shrink and returns appear more distant, however, investors are now paying much closer attention to proof of viability.

“It has been a very tough situation over the last couple of years,” Dr Carl Firth, chief executive of US-listed, immunology-focused biopharmaceutical company Aslan Pharmaceuticals, told The Business Times. “There have been droughts before, but never anything as long as this – 2022 was one of the worst years on record for biotech.”

Even players seen as having better chances have not been spared. Tessa Therapeutics, one of the top-funded biotech startups in Singapore, announced in June it was ceasing operations after failing to secure funding for its cancer treatment cell therapies.

There is no clear timeline for when sentiment might change, said Dr Piers Ingram, chief executive of precision biotherapeutics company Hummingbird Bioscience.

“The current fundraising environment is quite concerning for many smaller companies as well as their investors,” he said. Investors are supportive, but need assurance that others will come on board, as biotech investment is a very long road, he added.

Fundraising for early-stage startups in the local health and biomedical sciences sector fell from US$121 million in 2021 to US$89 million in 2022, indicated an SGInnovate report which looked at emerging tech startups under five years of incorporation as of 2022. (*see amendment note)

Dr Basil Lui, founding partner of August Global Partners (AGP), a South-east Asia-focused growth-stage healthcare fund, said: “The valley of death for the local ecosystem is at the growth stages. For biotech companies, that is when funding requirements steeply increase for large-scale human clinical trials and commercial scale-up.”

Covid-19 was a shot in the arm for the sector, which saw record venture capital-investment levels in 2021, but the market is now tightening with the normalisation of conditions, said Dr Clarice Chen, healthcare and biomedical director at Enterprise Singapore (EnterpriseSG).

A report by EnterpriseSG and DealStreetAsia found that funds raised in the wider “human health and potential” category, which includes biotechs, rose from US$400,000 million across 93 deals in 2020 to US$1.75 billion across 100 deals in 2021, before falling to US$770,000 million across 45 deals in 2022.

Market size, talent challenges

Despite its small market size, Singapore remains a premier location for biotech companies to start out, said Dr Zhou Lihan, chief executive of RNA-focused biotech company Mirxes, which is headed for an initial public offering (IPO) in Hong Kong.

“We are fortunate that amid this geopolitical tension, where a lot of scrutiny is applied on technology transfer across the East to the West, Singapore being neutral (and) very well-regarded (on) both sides actually gives us an edge,” he said.

The local ecosystem has a sturdy base of research talent but lacks the expertise crucial to later stages, said Dr Ignacio Asial, chief executive of DotBio, a cancer-focused biotech startup.

While the talent gap for pre-clinical biotech companies is projected to narrow from 110 roles in 2022 to 76 roles in 2032, according to a report by SGInnovate and LEK Consulting, the gap for clinical-stage biotech firms will widen from 44 to 123 within the same period.

AGP’s Dr Lui said the emergence of venture builders here is a step “in the right direction in building up the necessary commercial talent to translate cutting-edge biotech research”.

Singapore has been steadily investing in biomedical sciences, which in 2000 was named the fourth pillar in the country’s manufacturing economy.

As the ecosystem matures, however, the financing value chain becomes more critical as biotech companies look to raise funds and expand globally, said Professor Tan Sze Wee, assistant chief executive of the Agency for Science, Technology and Research Biomedical Research Council.

Mirxes’ Dr Zhou said: “(After) a 20-year investment, people want to see some level of success to have the assurance that what we did was right, and that we should continue to invest.”

“Unfortunately, the global environment has become very challenging,” he added. “We have to remind people that, just like stock markets, we have to really stretch our lens to look at the longer horizon.”

The road ahead

“With narratives now shifting beyond Covid-19, rising interest rates and murmurs of recession, the appetite for long-shot early-stage life science investment is understandably tempered,” said AGP’s Dr Lui.

His fund is seeing fewer early-stage life sciences opportunities in South-east Asia, but is increasing its investment in a number of “attractive” opportunities in healthcare services, drug manufacturing, distribution and infrastructure, which he noted are traditionally recession-resilient sectors.

He expects appetite for pre-IPO biotech investments to increase in the next few years, but thinks there are insufficient growth-stage and private-equity investors to “bridge high-quality companies over the chasm to achieve required milestones and clinical endpoints for an exit”.

Promising areas with large and unmet patient needs include cancer and neurodegenerative diseases such as Alzheimer’s and Parkinson’s.

Biotech startups can also seek alternative funding sources – including licensing agreements and partnerships with larger pharmaceutical companies – said Vishal Doshi, chairman and chief executive of AUM Biosciences, a precision oncology therapeutics company.

Khoo Shih, chief executive of Temasek-launched, life sciences-focused venture builder ClavystBio, said a key learning point for biotech companies here is to partner smart capital to drive industry growth. This refers to resources beyond finances, such as knowledge, expertise and connections.

The fundamentals – strong research and innovation institutions, a talent pipeline, and a large pool of credible investors – are already in place in Singapore, said Dr Lincoln Chee, managing director of healthcare-focused investment firm CBC Group.

“However, if we keep doing things the same way as before, then we cannot expect big changes in results.”

The Singapore Exchange’s (SGX) recent clarification that biotech companies can list without revenue means there will be more exit options.

While this is a “positive step”, he said a “whole-of-system review” is needed, “including the willingness to take more measured risks if we believe the impact on our economy, industry, and human potential and well-being is greater than the status quo”.

Aslan’s Dr Firth is optimistic that the global biotech ecosystem will start to recover towards the end of this year or early next year. “Most people think we are already starting to see the peak of interest rates,” he said, adding that as rates go down, investors will be more likely to turn to riskier asset classes such as biotech.

“Tessa or any single company should not be the barometer of the Singapore biotech ecosystem,” said Mirxes’ Dr Zhou. “What Tessa has created – the talents, experience, facilities, intellectual properties – I hope those can be recycled to fuel the growth of the next cell- and gene-therapy companies.”

*Amendment note: This story has been edited to reflect that the fundraising figures cited by SGInnovate are only for early-stage startups in the sector that were, as at 2022, incorporated less than five years ago.