For this reason, startups that wanted to go public did not dare to step into a turbulent and deflated stock market. Many companies are just trying to survive until the economic turnaround occurs. Some have gone under recently, including once-promising Colorado cancer company Clovis Oncology and Cambridge neurology startup Faze Medicines.
“There were a lot of really good companies that were ready to go public early last year that had the rug pulled out from under them and they went into survival mode,” said Jeffrey Quillen, a partner at Boston law firm Foley Hoag he works with biotech startups from inception to IPO. By the end of 2022, the biotech industry was “holding on by its fingernails,” he said.
Many of these followers were present at last week’s JP Morgan Healthcare Conference in San Francisco, the biggest biotech business meeting of the year. Hotel rooms and restaurant booths became boardrooms for companies offering investors or betting on a big break through a deal with—or acquisition by—a major drugmaker. But money that flowed freely a few years ago will clearly be harder to come by. A foreboding was spreading through the halls, with many predicting the bleak outlook could stretch well into 2023.
“Because we had ‘free money’ for several years, many companies were funded that shouldn’t have been funded,” said Jean-Jacques Bienaime, chief executive of California pharmaceutical company BioMarin, during an interview at an upscale hotel during the conference. “You will see companies disappear, merge and be acquired.”
Biotech executives have warned of this washout, and small companies across the country, including in Boston, have already resorted to layoffs or closed experimental drug programs to buy themselves another year or two. those of industry The underlying problem — getting too big too fast — isn’t unique to Massachusetts, but since the Boston area is widely considered the epicenter of biotechnology, the pain might be particularly acute here. But some in the industry say the purge could be healthy in the long run.
Main Street in Kendall Square. Boston’s biotechnology industry has spilled from this longtime stronghold into Fenway, Seaport and the surrounding suburbs. Jonathan Wiggs/Globe Staff
“If our sector is going to take a hit, Boston is a direct target,” said Hussain Morraj, consultant and head of life sciences in New England at Deloitte. “There will be a cull, and unfortunately some good science will perish along with the no good science, but industry will emerge stronger.”
And despite the downturn, it’s not like the funding tap has been turned off. A recent report by the Massachusetts Biotechnology Council found that companies are headquartered in the state Raised $8.72 billion in venture capital funding in 2022, down 36 percent year-on-year but still the second-highest year on record.
Many of these companies are based on new ideas for treating cancer or immune disorders. Others are developing new or improved forms of gene therapy or using artificial intelligence to develop drugs.
However, the landscape for IPOs has been bleak, with only eight biotech companies going public in the state last year, compared to 25 a year earlier. Larger life sciences companies were also reluctant to make big purchases last year, with acquisitions of 26 Massachusetts-based biotech companies valued at about $5.9 billion, compared to 34 for nearly $64 billion in 2021.
Many industry leaders are hoping funding and acquisitions could pick up as soon as this summer, but expect it will take longer for appetite for IPOs to develop. Executives point to a number of national and global concerns that could do so change this forecast, including inflation, rising interest rates, the specter of a recession, war in Ukraine, tensions in Congress and drug pricing legislation.
“These are the issues that are weighing on the sector,” said Barry Greene, chief executive of Cambridge-based Sage Therapeutics. “And it’s very challenging for Wall Street to embrace a sector with all this uncertainty.”
Many companies are trading at a small fraction of their highs, dragging their overall stock values below the amount of cash they have on hand, and setting the timers for bankruptcy. Lexington-based Concert Pharmaceuticals, which had only enough cash to survive through June, has just been bought by Indian drugmaker Sun Pharma.
“There was a massive overcorrection,” said Andrew Hedin, an investor at Bessemer Venture Partners in Cambridge. “The overall health of the industry remains very strong. When I think of the scientific advances that have been made in the last ten years, there is much to celebrate.”
“Those are the issues that are weighing on the sector,” said Barry Greene, chief executive of Cambridge-based Sage Therapeutics, referring to the biotech industry. “And it’s a big challenge for Wall Street to embrace a sector with all this uncertainty.” ANGELA WEISS/AFP via Getty Images
With the valuations of smaller biotechs falling sharply and the liquidity of larger drugmakers slacking, investors are wondering whether big pharmas will go on a buying spree. “There is a great opportunity for those with cash to close a deal,” said Chris Caruso, a partner at Deloitte who focuses on life sciences mergers and acquisitions. “Some companies that have been beaten up will likely be targets.”
Although it feels like a buyer’s market, there hasn’t been a wave of takeovers yet. Two small Massachusetts biotechs, Albireo and CinCor, were acquired by larger European drugmakers last week, marking a slow start to a normally busy biotech deal season. As Cincor CEO Marc de Garidel told the Globe, drug companies “seem to be pretty picky about what they want.” Cincor, which is developing a pill to treat high blood pressure, has been bought by AstraZeneca for $1.3 billion.
According to experts, partnerships and collaborations between large and small companies are becoming more common as large corporations try to invest in new science without taking the financial risk of buying outright a company whose experimental therapies may ultimately fail. Even biotech companies that wanted to go it alone a few years ago see such partnerships as a lifeline for their dwindling coffers.
“We’re looking for partners where it makes sense,” said Chris Round, president of EMD Serono, the Rockland-based US healthcare company of German life sciences giant Merck KGaA. “And as we enter tougher economic times over the next few years, I think we’ll probably end up doing more of that, as will others.”
Many executives of mid-sized and large biotech companies, which are comparatively spared from funding declines, view the coming washout as a natural and necessary part of a boom-and-bust cycle. These leaders say that companies founded on a single hypothesis or a handful of experiments that didn’t succeed need not continue.
“It’s a good thing to cut them away,” said Richard Pops, chief executive officer 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 deeply discounted values, he added.
Layoffs, which began to spike in the biotech industry last year, are likely to continue for cash-strapped companies. But Massachusetts executives say they’re having such a hard time filling vacancies that they’re not worried about unemployment in the industry. “There’s so much demand, it’s insane. It’s a war for talent in biopharmaceuticals,” Greene said.
A woman’s reflection can be seen through a colored sticker affixed to a window in Kendall Square on November 7, 2021. Jessica Rinaldi/Globe Staff
Seth Ettenberg, chief executive officer of Bluerock Therapeutics, Bayer’s Cambridge-based stem cell subsidiary, said that a couple of years ago he would extend vacancies and let candidates come back with three to five more offers. That may not happen anymore, and job seekers may need to be less selective about who they work for and less demanding of benefits like working from home, he added.
Venture capitalists focused on biotechnology say they will continue to invest in new start-ups but warn that the money won’t flow as freely, particularly into the third, fourth or fifth start-up trying to do the same to address the problem or to work on a similar technology Competitors.
“Those who raise the investment bar will finance fewer companies. But by definition, the quality of what’s being funded is also increasing,” said Jorge Condes, general partner at California venture capital firm Andreessen Horowitz. “And hopefully they’ll become more focused and a lot 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 scientific progress at local start-ups to slow down. “The Boston-Cambridge ecosystem is so incredibly strong and innovative, and there is such a critical mass of business creation skills, that I’m confident the ecosystem will get through this and still be an industry leader.”
That view – that the region’s biotech industry will weather the storm – was shared by many investors.
“Boston continues to be the biotech capital of the world,” said Hedin. “That won’t change any time soon.”
Ryan Cross can be reached at [email protected] Follow him on Twitter @RLCscienceboss.