Because of all this, startups hoping to go public haven’t dared set foot in a tumultuous and deflated stock market. Many businesses are simply trying to survive until there is an economic turnaround. Some have recently gone bankrupt, including Clovis Oncology, a once-promising Colorado cancer company, and Faze Medicines, a Cambridge neurological disease start-up.
“There were a lot of really good companies about to go public early last year that had the rug pulled out from under them, and they went into survival mode,” said Jeffrey Quillen, partner at the Boston law firm Foley Hoag that works with biotech startups from training to IPOs. At the end of 2022, the biotech industry was “standing by its nails,” he said.
Many of these junkies were represented at the JP Morgan Healthcare conference in San Francisco last week, the biggest biotech business meeting of the year. Hotel rooms and restaurant booths have become boardrooms for companies proposing investors or betting on a big breakthrough through a deal with — or acquisition by — a bigger drugmaker. But the money that flowed freely a few years ago will clearly be harder to come by. An air of foreboding hung in the halls, with many predicting the bleak outlook could last well into 2023.
“Because we had several years of ‘free money’, many companies were funded when they shouldn’t have been,” said Jean-Jacques Bienaime, chief executive of California-based pharmaceutical company BioMarin. , during an interview at a high-end hotel during the conference. “You’re going to see companies disappear, merge and acquire.”
Biotech executives have warned of this washout, and small companies across the country, including in Boston, have already resorted to layoffs or scrapped experimental drug programs to gain another year or two. industry The fundamental problem ― growing too big, too fast ― is not unique to Massachusetts, but because the Boston area is widely considered the epicenter of biotechnology, the pain could be particularly pronounced here. But some in the industry say purging can be healthy in the long run.
“If our industry is going to take a hit, Boston is squarely in its sights,” said Hussain Mooraj, consultant and head of New England life sciences at Deloitte. “There will be a cull and unfortunately good science will fall, along with bad science, but the industry will come out stronger.”
And despite the slowdown, it’s not as if the funding tap has been turned off. A recent report from the Massachusetts Biotechnology Council found that companies headquartered in the state raised $8.72 billion in venture capital funding in 2022, down 36% from the previous year, but still the second highest year on record.
Many of these companies are based on emerging ideas for the treatment of cancer or immune diseases. Others are creating new or improved forms of genetic therapies, or using artificial intelligence to design drugs.
The initial public offering landscape, however, was dismal, with just eight state biotech companies going public last year, down from 25 the previous year. Big life sciences companies were also reluctant to make big purchases last year, acquiring 26 Massachusetts-based biotech companies for about $5.9 billion, compared to 34 for nearly $64 billion in 2021.
Many industry leaders hope financing and acquisitions could resume as early as this summer, but expect the appetite for IPOs to take longer to build. Leaders highlight a number of national and global concerns that could change that forecast, including inflation, rising interest rates, the specter of recession, war in Ukraine, tensions in Congress, and drug pricing legislation.
“These are the issues that are hanging over the industry,” said Barry Greene, chief executive of Cambridge-based Sage Therapeutics. “And it’s very difficult for Wall Street to embrace a sector with all this uncertainty.”
Many companies are trading at a small fraction of their highs, dragging the total value of their shares below the amount of money they have and putting timers out of business. Lexington-based Concert Pharmaceuticals, which only had enough money to survive until June, has just been taken over by Indian drugmaker Sun Pharma.
“There was a massive overcorrection,” said Andrew Hedin, an investor at Bessemer Venture Partners in Cambridge. “The general state of the industry is still very solid. When I think of the scientific advances made over the past decade, there is much to be excited about.
As the valuation of small biotech companies has fallen dramatically and big drugmakers are teeming with cash, investors are wondering if big pharma will go on a shopping spree. “There’s a great opportunity for those with cash to get a deal,” said Chris Caruso, a Deloitte partner specializing in life sciences M&A. “Some companies that have been beaten will likely be targets.”
Although it looks like a buyer’s market, a wave of acquisitions has yet to materialize. Two small Massachusetts biotech companies, Albireo and CinCor, were acquired by larger European drugmakers last week, marking a slow start to a normally busy season for biotech business deals. As Cincor chief executive Marc de Garidel told The Globe, pharmaceutical companies “seem to be pretty picky about what they want.” Cincor, which is developing a blood pressure pill, was bought for $1.3 billion by AstraZeneca.
Experts said partnerships and collaborations between big and small companies are starting to become more common as big corporations seek to invest in new science without the financial risk of outright buying a company whose experimental therapies may ultimately fail. Biotech companies that might have wanted to go it alone a few years ago also see these partnerships as a lifeline to their dwindling coffers.
“We are looking for partners where it makes sense,” said Chris Round, president of EMD Serono, the Rockland-based US healthcare business of German life sciences giant Merck KGaA. “And as we head into what looks to be tougher economic times for the next two years, I think we’ll probably end up doing more, like others.”
Many executives of mid-sized and large biotech companies, which are relatively immune to declining funding, view the coming meltdown as a natural and necessary part of a boom-and-bust cycle. These leaders say that companies based on a single hypothesis or a handful of failed experiments don’t need to continue.
“It’s good to prune them,” said Richard Pops, chief executive of Alkermes, an Irish pharmaceutical company with US headquarters in Waltham. “Companies with good science can raise capital, but the cost of capital will be exasperating,” as they may have to sell their shares at vastly deflated values, he added.
The layoffs that started rising last year in the biotech industry will likely continue for cash-strapped companies. But Massachusetts executives say they’re having such a hard time filling vacancies that they aren’t worried about unemployment in the industry. “There is so much demand, it’s crazy. It’s a biopharmaceutical war for talent,” Greene said.
Seth Ettenberg, managing director of Bluerock Therapeutics, the Cambridge-based stem cell subsidiary of Bayer, said that a few years ago he would extend job offers and bring applicants back with three to five more offers. That may not happen again, and job seekers may need to be less picky about who they work for, as well as less choosy about benefits such as working from home, he added.
Biotech-focused venture capitalists say they will continue to invest in new startups, but warn that money won’t flow as freely, especially in the third, fourth or fifth startup trying to tackle the same problem or working on technology similar to its competitors.
“Fewer companies will be funded as the investment bar rises. But by definition, the quality of what is funded also increases,” said Jorge Conde, general partner at California-based venture capital firm Andreessen Horowitz. And hopefully they will be more focused and much more powerful.”
Rupert Vessey, president of research and early development at Bristol Myers Squibb, which is opening a new research site in Cambridge this year, doesn’t expect the scientific progress of local startups to slow down. “The Boston-Cambridge ecosystem is so incredibly strong and innovative, and there is such a critical mass of business building skills, that I’m sure this ecosystem will weather this period and stay at the top of the industry. “
This view―that the region’s biotech industry will weather the storm―has been shared by many investors.
“Boston continues to be the biotech capital of the world,” Hedin said. “That won’t change anytime soon.”
Ryan Cross can be contacted at ryan.cross@globe.com. Follow him on Twitter @RLCscienceboss.
#Hold #fingernails #Massachusetts #biotech #industry #gearing #tough #year #Boston #Globe