Overview of financing options for French biotech companies

The trajectory of a biotech company is often full of ups and downs, influenced by unpredictable changes in market conditions. It is therefore imperative for biotech companies to be agile in finding the most appropriate financing tools for each stage of their development. This article makes a brief presentation of possible financing options available to French biotech companies.

Issuance of equity securities

Capital increases or issuance of securities giving access to the share capital remain the main source of financing for French biotech companies. The complexity of these operations can vary according to the constraints of the biotech and the requirements of investors.

In recent months, confronted with complicated market conditions, French biotech companies have increasingly implemented structured equity deals, combining several types of securities.

For example, several biotechs issued share subscription warrants (BSAs) alongside ordinary shares, offering investors an attractive optionality.

Other biotech companies issued royalty certificates, an instrument little-known in France before 2022. This was the case for Abivax in September 2022 and Inventiva in August 2023, which raised a total of 49.2 million euros and 35.1 million euros, respectively. These certificates, which are treated as debt securities, entitle their holders to royalties on future sales of the company's drug candidates. They offer important returns to investors if these products are brought to market, but have no value if the products do not achieve commercialization.

Finally, some biotech companies have entered into bridge financing transactions, notably in the form of convertible bonds. These operations should not be confused with equity line programs (in particular OCABSA equity lines). The latter instruments can generate massive dilution and a fall in share price if misused, as a few French biotech recently experienced.

Some innovative financing structures have also been dictated by increasing regulatory constraints. Beginning with a decree issued on April 27, 2020, biotechnologies are subject to the French Foreign Direct Investment (FDI) control procedure. The ownership threshold triggering this procedure has been lowered to 10% of voting rights for companies whose securities are admitted to trading on a regulated market, compared with 25% for others. Any significant investment by a foreign shareholder must therefore be reviewed to determine whether it could trigger the need for FDI clearance. Despite shorter deadlines for listed companies (10 working days for the first phase of the procedure), FDI timelines are often incompatible with the timing of biotech financing operations. To remedy this, some biotech companies, such as DBV Technologies (November 2022) and Sensorion (August 2023), have issued pre-financed warrants. Unlike traditional warrants, the exercise price is paid in advance, enabling the issuer to receive almost the entire investment immediately. The warrants can only be exercised once the French Ministry of Economy's FDI clearance has been obtained.

Structured debt

Faced with the difficulties of raising sufficient funds through capital increases in a complicated market, French biotech companies have increasingly turned to debt instruments as a complement to equity financing. These loans, which are often divided into several tranches, offer flexibility and security, and make it possible to raise additional financing quickly, especially in the event of unfavorable conditions for a capital increase.

However, such financing remains costly due to high interest rates and other associated fees. Their dilutive aspect should also be considered, as lenders often request to invest through convertible bonds and/or to be issued warrants. These instruments enable lenders to realize higher returns in the event of an increase in the borrowing company's valuation. As such, these structured debts often fall somewhere between traditional debt and equity.

In recent months, several structured debt transactions have been carried out, notably by Abivax (two structured financings for a maximum total of 150 million euros in August 2023). The attractiveness of these instruments is illustrated by BlackRock's acquisition of Kreos Capital, one of the leading players on the European market, in August 2023.

Biotech companies can also turn to government institutions, such as the European Investment Bank (EIB) and Bpifrance, or traditional banks for simple or structured debt.

Strategic partnerships and licenses

Partnerships with pharmaceutical companies are also an important source of funding for biotech companies. These partnerships can take a variety of forms but are usually structured around an upfront lump sum and milestone payments. They may also involve an investment by the big pharma in the biotech's capital.

These partnerships enable biotech companies to finance their programs while allowing laboratories to position themselves on promising assets and limit their financial risk.

A variant consists of granting an exclusive license in certain geographies, often in Asia. These agreements enable biotech companies to receive financing while retaining rights to key markets in the USA and Europe.

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