Morgan Stanley’s Co-Head of Healthcare Equity Capital Markets on What IO Biotechs Can Expect in 2025
Kalli Dircks is a Managing Director and Co-Head of the Healthcare Equity Capital Markets group at Morgan Stanley. She shares her thoughts on what to expect in 2025 for IO biotech capital raising, and what her advice would be for biotechs to successfully navigate challenging economic environments.
What work are you leading as Managing Director, Global Capital Markets at Morgan Stanley?
My focus is meeting biotech companies early and following them through their life cycle as their funding needs change. I spend my time with therapeutics companies and focus on raising money via equity, which includes IPOs, follow-ons, convertibles, and private placement financings. I help to prepare those companies to go public through an IPO, and navigate raising public capital through follow-ons, largely on the back of their clinical catalysts.
What makes you passionate about healthcare specifically over other sectors?
I have a passion for healthcare because of the people and the community who are doing well by doing good. I started to work on biotech IPOs in 2012, and since then I’ve been driven by a love for what the people are doing, and the perseverance from the CEOs, CFOs and their backers. I felt that getting to know these companies earlier and having deeper relationships would have an impact on how to best position them, and solve their financing needs.
What research coming out of biotechs is particularly exciting to you?
One thing that excites me, particularly in oncology, is seeing how immunotherapies are having a profound impact on younger people. It’s very concerning to see younger people becoming afflicted with grave cancers, like breast, colorectal, pancreatic, etc. We’re seeing medicines adding decades of life expectancy. I'm not a scientist by training, but I can help scientists raise money and that’s how I’m focusing my efforts.
"Companies entering the public equity markets need to be more mature now than previously. Establishing proof of concept and efficacy is important to people who are investing in public companies right now."
What do you expect for the fundraising and finance environment for biotechs in 2025?
The beginning of 2024 was very much fueled by M&A. That redeployment of capital fueled the equity issuance market. In the absence of that, we're going to need fund flows that are coming from positive clinical catalysts or fund flows coming into healthcare.
That means that companies entering the public equity markets need to be more mature now than previously. Establishing proof of concept and efficacy is important to people who are investing in public companies right now. Investors want to make an investment that will have some type of clinical catalyst in the near term, ideally within 12 months, so they are rewarded for the clinical risks they are taking.
What would be your advice for IO biotechs looking to fundraise?
My advice is to map your cash needs against your clinical timelines, and to keep your valuation moderate. As we've seen in the past, sometimes if you push valuation to a level that's too high, it's very hard to outperform that. It is important that you have investors that are partnering with you for the long term and remain excited.
Ideally, you're keeping valuation appropriate such that you have investors who feel like they're being compensated for the risk they're taking. There are people who are extremely knowledgeable in the space who are willing to make that leap of faith, but the compensation for them on the risk that they're taking needs to be appropriate.
If biotechs do maintain a more conservative valuation, how does that impact their other activities or how they’re spending their money?
Focus on mapping your cash needs to when you think you will have some clinical catalyst. Your cash should take you through those events or get you to an event that provides an opportunity to go back to investors to request more capital to move programs ahead.
Companies that are well-funded are allowed to make decisions that are more fundamentally rooted in the science and the development, versus making decisions because their balance sheet needs it.
"Map your cash needs against your clinical timelines, and to keep your valuation moderate."
What are the traits of biotechs that have weathered positive and negative economic environments?
Those that have succeeded have shown creativity when it comes to fundraising, whether it's business development, partnerships, private equity financings, doing follow-ons, etc.
The other trait is investing in the investor relationships, whether it is venture capital or the healthcare dedicated hedge fund community or the mutual fund community. Partnering with those people and having a few true believers not only helps you raise capital, but also gives you advocates across the biotech community.
What activity would you advise biotechs to be cautious about?
One is to avoid surrounding yourself with too many like-minded people. When you surround yourself with people that are just like you, you can make decisions that make sense at that time, but don’t take into account the full suite of information. Management teams should surround themselves with advisors who have a diversified set of opinions. It may be a trusted advisor at a bank that knows you over time, or bringing in a board observer, or having a head of IR who has been at more mature companies.
The other is to take financing when it’s available. The macro sentiment in our industry can drive a lot of the value creation. Good companies going public in good times is excellent. Good companies going public in bad times can still be challenging. IPOs are about selling enthusiasm for the drugs being developed. If you don’t have that enthusiasm in the background, it can be difficult for even the best companies.
What has been a lesson learned from your career?
What I found was important in the healthcare industry was relationships with investors across this tight-knit healthcare dedicated community. Having trust and relationships is critical in fundraising. The other important thing is investing time and effort into building relationships with biotech companies over a long period of time.
What advice would you give to young people entering the finance industry?
One is that you've got to have passion and perseverance in this arena. Another is to find a role model to actively learn from. If you're looking for a long-term career, it’s critical to find yourself in a place where you can be challenged and are challenged with support. You're never going to be able to expand your horizon or do more if you don't feel like you have that support there.
Sometimes your career doesn't always make sense looking forward but does make sense looking back. Get the experience, find a role model, challenge yourself, because that is how you develop your gut and your sense of confidence.
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