Biotech is in a new normal, says SR One’s Simeon George
Constraints of the market aren’t going away any time soon, and demand a new business model
Biotechs need to get used to the new normal, says SR One CEO and Managing Partner Simeon George, and that will require significant adjustments to the business model. This new normal comes from an extended tough capital environment against a backdrop of political uncertainty, but while biotechs face a different set of factors than they have in the past, there are still first principles of value creation that should guide them.
George, who co-founded SR One management in 2020 following its spinout from GSK plc (LSE:GSK; NYSE:GSK), spoke on The BioCentury Show about the challenges facing biotechs and how VCs are navigating through the complexity of the moment. He also discussed SR One’s strategy and philosophy of investing.
“It’s very much an environment where you’ve got all these different forces that are racing and you’re trying to figure out how to make sense of them all,” said George.
While he emphasized that he doesn’t “pretend to have it all figured out,” the main thesis is to control what you can and lean on past examples of success. Being more disciplined with capital allocation is key, as the constraints will be around for a while yet.
“There is some level of fundamental business model that needs to happen, and is happening, I believe,” said George.
“If I’m the one that’s telling them their strategy, one of us is in the wrong job.”
George said that many companies still need to adjust their valuation expectations that remain rooted in the market of the 2020-22 boom. “On the private side, it genuinely doesn’t matter what you have on your books. It’s what is someone going to pay to put more money into your company to get to the next clinical or preclinical proof points?”
He is telling boards and companies that pragmatism has to trump “whatever notion of value we think we’ve captured in the prior round.”
The new business model means constraining resources to get to the proof points and deprioritizing or partnering even favorite projects to enable the most value-driving ones to succeed.
“There’s been enough time in this reset state where the cost of capital is fundamentally higher than it’s been five, seven, 10 years ago. We have to acknowledge it’s more expensive now to do the things we need to do to get companies to proof points,” said George.
However, it’s not just the companies that are in distress that should adjust, but even those who are doing well, because this new normal will be here for an extended period.
Having the right management team remains one of the first principles of value creation. The question of when a company needs to remain on course, pivot or close down, is down to the chief executive, for example.
“What we are underwriting is the quality of the management team and the CEO in particular to be the custodian of how we ultimately create enterprise value,” said George. They are the closest to what’s happening in the company, know the competitive landscape and how things are changing.
“At the board level, we can pressure test assumptions, we can calibrate, we can agree or disagree, but ultimately, the person running the management team is the one that should be driving those decisions. And if they’re not driving those decisions, if I’m the one that’s telling them their strategy, one of us is in the wrong job,” said George.