Macro-Environment Effects on Investment Decision-Making in Life Science Tools & Diagnostics

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This past Wednesday, April 26th, Gilmartin Group hosted a webinar with three sell side analysts, Dan Arias (Managing Director, Stifel), Dan Brennan (Managing Director, Cowen) and Mark Massaro (Managing Director, BTIG), moderated by Gilmartin Managing Director, David Deuchler, to discuss macro effects on investor sentiment in the sector. Below are the key takeaways from the dialogue.

Moderator: David Deuchler, Managing Director, Gilmartin Group

Guest Speakers:

  • Mark Massaro, Managing Director, BTIG
  • Dan Arias, Managing Director, Stifel
  • Dan Brennan, Managing Director, Cowen

Key Takeaways:

The size and global exposure of a company determines how much they are impacted by different macro factors.
The companies that operate globally and have exposure to industrial chemicals are seeing more disruption from China. To a lesser degree this year, the war in Russia and Ukraine is pressuring growth for some companies, as seen by Illumina’s first quarter earnings report. Biotech funding, which fueled growth for bioprocessing parts of the LSTDx world for the last decade, is now experiencing pressure among their divisions that service biotech, and we’re already seeing this with Danaher’s earnings report. Interest rates are also a concern, and we expect the smaller companies that are burning cash to bear the brunt of this macro factor.

Get cash while you can, not just when you need it.
Interest rates and the increasing cost of capital are making it more challenging for companies with negative cash flow to maintain a healthy balance sheet. This in turn makes it more challenging for investors to provide them with capital. Essentially, companies may find it easier to raise money long before they are close to running out. The panelists advised raising money when you can and not just when you need it, even in a down-round scenario.

The next class of IPOs will be prized unicorns, or at least have a well-defined, large market opportunity.
Our panelists deliberated on the composition of the next group of companies to go public in LSTDx. Potential criteria that would attract smart money include $100 million in revenues, a clear path to profitability in 3-5 years, or a large TAM or SAM. Regardless of the size of the addressable market or revenue amount, having a massive undefined number as an addressable market will no longer fly. In a more risk averse environment, companies will need not only need to have a large addressable market, but a clearly defined one. They’ll also need to demonstrate their ability to take share in that market by having a better mouse trap.

In conclusion, the macro factors weighing on Life Science Tools and Diagnostics companies in the present market environment include interest rates, China trade relations, and to a lesser degree, Russia’s war. Which of these factors impacts what company and to what degree largely depends on their size, stage, and global exposure. The webinar panelists believe that capital markets will come back around, and when they do, companies will no longer be able to win over investors simply by stating they have a $12B TAM.

Gilmartin Group has deep experience working with both private and public companies across Life Science Tools and Diagnostic and the larger healthcare space. For more information about how we strategically partner with our clients, please contact our team today.

Authored by: Nina Deka, Vice President, Gilmartin Group

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