2023: A ‘Biotechy’ Year

Speaking recently with the Chief Executive of a promising pre-clinical UK biotech we asked him how he would describe 2023 so far. He replied ‘It’s been an extremely biotechy one’. Whilst we laughed knowing the funding challenges he was referring to it has unquestionably been a uniquely difficult year for companies and people employed in the sector. Why has it been so? Where are the challenges particularly acute? And importantly what are the prospects for recovery and a better 2024 for the sector? Our research highlights the following answers;

Series A and B Rounds

Most estimates show a major decrease in biopharma funding compared to the previous year. Finding the funding to continue early-stage programs has been perhaps the biggest struggle companies have faced. Whilst some of the companies that secured seed and Series A funding in previous years managed to secure additional funding this year these financings were smaller in size compared to the previous year.?

The Exit of Crossover Investors

One significant development has been the departure of crossover investors who had previously led high-priced Series B and C rounds in early-stage pre-clinical trials. This departure was largely attributed to the decline in the IPO market, leading these investors back to the public market. Consequently, Series B and C deals are now being led by traditional venture investors at reduced deal sizes and valuations. The focus has shifted from strengthening the financial position for an IPO to prioritizing advancements in clinical research.

Challenges for Early-stage Companies

Early-stage companies faced a sharp drop in investments, with a significant proportion of deals requiring additional support from insiders, partnerships with big pharmaceutical companies, or consolidation through mergers and acquisitions. New investors are requesting different milestones to gauge value enhancement, making it imperative for companies to raise insider money and potentially re-evaluate their strategies (i.e., cutting staff) to reach crucial clinical data milestones.

Anticipated Upswing and Future Predictions

Despite these challenges, there is cautious optimism for an upswing in deals and funding in the months ahead. The consensus amongst the leaders in the industry we speak to is that 2023 has seen the bottoming out of macroeconomic factors affecting the industry. More stable interest rates and slowing inflation across major economies undoubtedly bode well. The third quarter of 2023 has seen some notable and high-value Series A rounds completed, mainly in the US.?

As one Chief Executive said to us recently ‘whilst I’m not certain I can see the green shoots of recovery starting I can at least smell them’.

The consensus is that we will see different types of investors taking the lead in later-stage deals and we might also see some unexpected IPOs, showcasing the adaptability and resilience of biopharma companies. Additionally, private mergers and acquisitions are set to make a comeback, possibly resulting in a flurry of deals. All of this should drive optimism and momentum in the sector as we move into 2024.

In a landscape marked by change and challenges, the biopharma industry will continue to evolve. Companies and investors are adjusting their strategies to navigate the evolving funding challenges, ensuring that the pursuit of much-needed ground-breaking medical advancements will continue.

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By Simon Allsop & Carmen Martínez de la Colina Vilari?o