Is Biotech Headed for Bear Run?
2020 and 2021 were remarkable for biotech startups as the financing smashed all records. Venture Capital financing hit an all-time high of over $35 billion globally in 2021. Now, as the pandemic weakens, inflation is on the rise, and the impact of the Russo-Ukraine conflict is intensifying. Let’s find out whether these global events are setting the stage for a ‘bust phase’.
Fundraising across the biotech sector rocketed off the charts in 2020 and 2021. In 2020, VC (Venture capitalists) funding grew to $36.6 billion from $14 billion in 2019. In China, the number of funding rounds grew four times faster than in Europe and the US. (Source: McKinsey)
Following an unprecedented pandemic-driven investment surge in 2020, investment figures remained resilient through 2021 and garnered almost the same with $36.3 billion (PitchBook).
Asia has become an increasingly active biotech geography. CipherBio data demonstrates that in 2020 by far the largest biotech funding location in Asia is China, with 10 out of 16 Asian deals being sealed in this country.
In addition to enterprises developing RNA medicines, developers of adoptive immune cell therapies, and PROTAC (proteolysis-targeting chimera) approaches were prominent in fundraising and partnering. Financing also rolled into machine learning ventures. Mergers were down, as pharma showed a greater interest in partnerships.
VC funding peaked in the first quarter of 2021, and has declined slightly since – with market research firms claiming anywhere between 10 – 30 per cent dip in the sector. The first quarter of 2022 was the slowest in three years for new stock offerings signalling a tougher financing environment.
said Ben McLaughlin, Partner, Baker & McKenzie, Australia. Some experts, however, feel that the downturn is short-term and the sector will likely rebound.
said Daphne Teo, CEO and Founder of NSG BioLabs, Singapore.
Srikant Sastri, Governance Board Member, BioAngels, India echoes the same sentiments:
COVID-19 has been the catalyst for countless pivots. Many startups pivoted their missions and offerings or added services tailored to the pandemic.
For example, Indonesia’s Nusantics, a genomics technology company, was focused solely on the field of microbiome analysis. The company changed course in 2020 to produce COVID-19 testing kits when they were needed most.
Australia’s Atomo Diagnostics, that developed a rapid blood test for HIV, also repurposed its technology to work on self-testing kits for COVID-19.
Another wave or low tide?
This is a reset time for the sector. First time fundraisers or early-stage companies will find it hard to raise capital. Investors would shy away from riskier business for some time and prefer stable businesses.
Not all is lost though. Experts are confident the sector will bounce back and the funds won’t dry up completely.
Start-ups with cutting-edge platform technologies—which constitute a base or infrastructure on which other therapies can be developed—have benefited the most and VCs will continue to bet on such emerging technologies. Cell therapy 2.0, next-generation gene therapies, precision medicine, new delivery methods etc are some of the areas where VCs will continue to pump money.
The business of biotech is not expected to return to its pre-pandemic “old ‘normal’.” Companies will need to adapt to many new challenges in the rapidly evolving business environment. Yet, as 2021 demonstrated, there are also huge potential opportunities for biotech as it faces the future, according to EY’s Beyond Borders 2022 report.