The strategic challenges of the French Healthtech sector - health, innovation and sovereignty - are undeniably its best assets for growth. How did this sector thwart the predictions during the COVID-19 crisis and how did it find its financing?
Despite the absence of IPOs on Euronext in this sector for the past year, stock markets have not weakened thanks to several private placements, public offerings and equity financing lines.
The challenges related to health e.g. inclusion of digital and data to offer predictive, personalised and improved treatment solutions, are opening market prospects and attracting investors.
Digital health companies have naturally expanded their activities with teleconsultations, diagnostic tools, and monitoring solutions for patients and practitioners, and many Biotechs have reoriented part of their R&D towards COVID-19.
Without downplaying the obvious difficulties that companies have globally encountered, it is optimistic that French Healthtechs are gaining maturity and have shown agility in adapting their financing.
All the ‘tools’ offered by the pandemic have been used: short-time working, teleworking, delays in payments and remittances of social and tax contributions, accelerated reimbursement of the R&D tax credit, recourse to “PGE ”[2], activation of State aid and regional solidarity funds. New measures have been introduced: repayable advances and subsidised loans, and a call for projects PSPC[3] COVID-19 via Bpifrance.
The financing rounds[4] still took place, and provided an opportunity to redesign the legal structuring of the rounds through: insertion of MAC clauses between signing and closing and between investment tranches; tranching on the basis of multiplied milestones; challenging negotiations on valuation leading to ratchet mechanisms down or up between financing tranches; increased sensitivity on representations/ warranties; good and bad leaver clauses and discussion around granting management incentives.
The entrepreneurial spirit of the founders was reassuring for more protectionist investors.
The historical shareholders responded by participating in the rounds or by granting more shareholders’ loans and bridge financings than usual, via bonds convertible into shares.
Bpifrance supported these bridges with its seed fund French Tech Seed and the French Tech Bridge in a more capital-intensive logic between two fund raisings (convertible bonds or with an equity kicker in the form of equity warrants).
The European Investment Bank continues to provide loans with equity warrants up to €40 million. The European Innovation Council (EIC) has launched a highly selective program, EIC Accelerator, with a budget of €80bn, choosing several French Healthtechs.
Whilst the combination of these tools makes the legal structure of the rounds more complex, it allows for patience in order to build the next one.
Where some deals would have been financed solely by VCs, CVCs often invite themselves to the negotiating table, despite having specific requests e.g. veto rights on decisions involving competitors, enhanced information and compliance rights, rights of first refusal. The French ecosystem shows ingenuity in combining the types of investors by integrating their industrial constraints, compensated by their long-term investment and their ability to offer strategic partnerships. In this respect, we can see that Corporate companies now have their venture arm, e.g. Merck, Takeda and Danaher took part in significant rounds in France this semester.
Partnerships with Big Pharma have been accelerated, becoming sources of equity financing and/or through upfront, milestone payments, particularly for Biotech focusing on innovation in immuno-oncology, neurology, gene therapy and the treatment of rare diseases.
More and more Healthtechs are seeking a direct listing on the Nasdaq, despite the very selective criteria of this market and the scale of the project. Is this proof of the sector's maturity or deficiency in our French financial markets?
French, European and American crossover funds[5] continue to be created to help Healthtechs avoiding the pitfall of a premature IPO, while private equity giants are increasingly interested in the sector and are raising funds of unprecedented size[6].
More than 20 leading pharmaceutical companies have announced the launch of the $1 billion AMR Action Fund[7]. Still, the French ecosystem suffers from a lack of French funds to finance the growth and emergence of Healthtech champions.
Special Purpose Acquisition Companies (SPACs) have recently been listed on the Nasdaq, raising funds to acquire targets that could potentially include French Healthtechs, who remain very attractive. It is predicted that in this growing context, M&A operations should come back due to the need for consolidation to reach critical size and the low capitalisation of some Healthtechs on Euronext, e.g. the three takeover projects launched this summer by foreign players[8].
[1] EY Barometer of Venture Capital in France (1st half 2020)
[2] 'Prêt Garanti par l’Etat', i.e. French State-guaranted loan
[3] 'Projets Structurants pour la Compétitivité spécifique à la crise sanitaire', which is a support mechanism financed by the French Future Investment Program
[4] €449 million compared with €306 million in the first half of 2019
[5] Sofinnova and Forbion Growth for instance
[6] Blackstone: $4.6bn
[7] https://amractionfund.com/
[8] Integragen, Medicrea and Genkyotex
