The biotech industry is undergoing a transformation as it enters 2024. The sector, which has been one of the most innovative and dynamic in the past decade, is facing a number of challenges that could affect its growth and profitability. At the same time, there are also opportunities for new entrants and existing players to capitalize on the unmet medical needs and technological advances that are driving the field forward.
Let's examine some of the key trends and issues that are shaping the biotech landscape in 2024, and how they impact the young companies that are trying to make a mark in this competitive and complex market.
IPOs: A high bar for going public
One of the most visible signs of the changing biotech environment is the decline in the number of initial public offerings (IPOs) in recent years. According to data from BioCentury, there were only 36 biotech IPOs in 2023, down from 71 in 2021 and 58 in 2022. The total amount raised by these IPOs was also lower, at $3.7 billion in 2023, compared to $6.8 billion in 2021 and $5.4 billion in 2022.
The reasons for this slowdown are manifold. First, the market conditions have become less favorable for biotech stocks, as investors have become more cautious and selective amid the economic uncertainty and geopolitical tensions that have characterized the post-pandemic era. Second, the regulatory environment has become more challenging, as the Food and Drug Administration (FDA) has raised the bar for approving new drugs, especially for novel modalities and indications. Third, the competition has intensified, as more biotech companies are vying for a limited pool of capital and attention from investors and partners.
As a result, the biotech IPO market has become more selective and demanding, favoring companies that have more mature and de-risked pipelines, strong clinical data, clear regulatory pathways, and differentiated value propositions. This means that early-stage companies that rely on platform technologies or preclinical assets may find it harder to go public, unless they can demonstrate a clear competitive edge or a strategic partnership with a larger firm.
Layoffs: A number crunch forces tough choices
Another consequence of the challenging IPO market is that many biotech companies have faced a financing crunch that has forced them to make tough choices about their operations and strategy. According to BioPharma Dive, nearly 150 drugmakers announced layoffs in 2023, affecting more than 10,000 workers (See my colleague Charlie Pratummanee’s article about Managing Layoffs for more on that!). The majority of these layoffs were driven by financial reasons, such as running out of cash, failing to raise funds, or restructuring after a merger or acquisition.
The impact of these layoffs is not only on the affected employees, but also on the innovation potential of the biotech sector. Many of these layoffs have resulted in cutting research and development (R&D) activities, which could hamper the discovery and development of new drugs and therapies. For example, Alnylam Pharmaceuticals announced in October 2023 that it would reduce its headcount by 15% and focus on its core RNA interference (RNAi) platform, while discontinuing several early-stage programs in other modalities. Similarly, Bluebird Bio announced in November 2023 that it would split into two separate companies, one focused on gene therapy and one on oncology, while cutting its workforce by 20% and halting several clinical trials.
For young biotech companies that are struggling to raise funds or generate revenues, these layoffs pose a dilemma: should they cut costs by reducing R&D spending or staff size, or should they seek alternative sources of capital or partnerships to sustain their operations? The answer may depend on several factors, such as the stage and quality of their pipeline, their cash runway and burn rate, their competitive position and differentiation, and their strategic vision and goals.
FTC action: A threat to early-stage licensing deals?
Another issue that has raised concerns among biotech companies is the recent lawsuit filed by the Federal Trade Commission (FTC) against Sanofi for licensing a rare disease drug from Maze Therapeutics. The FTC alleges that Sanofi violated antitrust laws by acquiring an exclusive license to develop and commercialize Maze's drug for Pompe disease, a genetic disorder that causes muscle weakness and respiratory problems. The FTC claims that Sanofi's license prevents Maze from developing its own drug for Pompe disease or licensing it to other competitors, thus reducing innovation and competition in this market.
The FTC's lawsuit is significant because it could signal increased scrutiny for early-stage licensing deals between large pharma companies and small biotech startups. This could increase the uncertainty and delay of their revenue streams. Small biotechs often rely on licensing their intellectual property to larger pharmaceutical companies in exchange for upfront payments, milestones, and royalties. These deals help them fund their research and development, as well as attract investors and partners. However, if the FTC intervenes in these deals and imposes conditions or restrictions, it could reduce the value and attractiveness of the licenses, as well as prolong the negotiation process. This could jeopardize the financial viability and innovation potential of small biotechs, especially in a highly competitive and risky industry.
Being the next big thing: how to compete?
One of the biggest stories of 2023 was the breakthrough of weight-loss medicines, led by Novo Nordisk and Eli Lilly, who launched their GLP-1 agonists semaglutide and tirzepatide, respectively. These drugs showed impressive results in clinical trials, helping obese patients lose up to 20% of their body weight, and reducing the risk of cardiovascular and metabolic complications.
The success of these drugs sparked a frenzy of activity in the weight-loss field, as other pharmas and startups rushed to develop their own candidates, hoping to capture a slice of the huge and growing market. According to a report by Grand View Research, the global weight-loss market is expected to reach $295.3 billion by 2027, growing at a CAGR of 8.9%.
However, this also means that the competition is fierce and the barriers to entry are high. Not only do new entrants have to contend with the dominant players, who have already established strong brands and loyal customer bases, but they also have to meet the stringent regulatory and safety standards for weight-loss drugs, which have historically been plagued by serious side effects and scandals.
Moreover, they have to differentiate themselves from the existing options, which include not only drugs, but also devices, surgeries, diets, and lifestyle interventions. This requires innovation, creativity, and a deep understanding of the unmet needs and preferences of the target population.
Platform technologies: have they fallen out of favour?
Another trend that has emerged in the biotech industry is the decline of platform technologies, which are methods or tools that can be used to create multiple products or applications. Examples of platform technologies include CRISPR gene editing, mRNA delivery, synthetic biology, and AI drug discovery.
Platform technologies have been hailed as game-changers in biotech, as they promise to accelerate the development process, reduce the costs and risks, and enable novel solutions for challenging diseases. Many platform biotechs have attracted significant funding and attention from investors, who saw them as potential gold mines that could generate multiple blockbusters.
However, in the current market, platform technologies have fallen out of favor, as investors prefer de-risked products that can quickly fill pipelines and generate revenues. Platform biotechs face several challenges, such as proving the validity and versatility of their platforms, scaling up their production and manufacturing capabilities, protecting their intellectual property rights, and navigating the complex regulatory landscape.
Additionally, platform biotechs have to compete with established players who have their own platforms or have acquired or partnered with platform companies. For instance, Pfizer acquired Trillium Therapeutics, a leader in CD47-targeted therapies; Merck partnered with Moderna to develop mRNA-based vaccines; and Gilead collaborated with Tango Therapeutics to leverage its CRISPR-based discovery platform.
Cell and gene therapy: a promising yet perilous field
Cell and gene therapy are among the most cutting-edge and exciting areas of biotech, as they offer the potential to cure or modify diseases at the genetic level. Cell therapy involves transplanting or modifying living cells into a patient's body to treat a disease or injury; gene therapy involves introducing or altering genes in a patient's cells to correct or prevent a genetic disorder.
Cell and gene therapy have shown remarkable results in treating some rare and life-threatening diseases, such as spinal muscular atrophy (SMA), hemophilia A, sickle cell disease (SCD), and various forms of cancer. The FDA has approved several cell and gene therapies in recent years, such as Zolgensma for SMA; Luxturna for inherited retinal dystrophy; Yescarta and Kymriah for certain types of lymphoma; and Zynteglo for beta-thalassemia.
However, cell and gene therapy also face numerous challenges that hamper their development and adoption. These include high costs and complexity of manufacturing; limited scalability and accessibility; safety and ethical concerns; regulatory uncertainty; reimbursement issues; and public perception and education.
Many cell and gene therapy companies have had to cut programs, retrench or lay off workers to save cash. Some startups have shut down for lack of funds. For example, Unum Therapeutics, which was developing antibody-coupled T-cell receptor (ACTR) technology for cancer immunotherapy; Adverum Biotechnologies, which was developing gene therapies for eye diseases; and Solid Biosciences, which was developing gene therapies for Duchenne muscular dystrophy (DMD).
Conclusion - what's there to learn?
The biotech industry is undergoing a turbulent period in 2024, as it faces multiple challenges from different fronts. However, these challenges also present opportunities for innovation, collaboration, and differentiation. Biotech companies that can adapt to the changing market dynamics, leverage their strengths, and address the unmet needs of patients and stakeholders will be able to survive and thrive in the long run.