Clouds gather over biotech industry

The biotech sector has had a rocky 12 months, and signs of the strain are showing. Stocks have fallen, venture capital investments and company creation show signs of tapering off, and some companies are announcing layoffs.

But a red-hot biotech job market—fueled by the explosive expansion of the sector over the past 5 years—offsets some of the gloom and doom. “I can’t remember a period that’s been this busy,” says biotech recruiter Chris Clancy, associate vice president at HireMinds in Cambridge, Massachusetts. “We’re not seeing signs of slowing on the hiring front.”

Biotech companies thrived on the stock market at the beginning of the pandemic, but they have slumped over the past year. The SPDR S&P Biotech ETF (XBI), which tracks a basket of US-based biotech companies, is down around 40% from its February 2021 peak. It fell 20% in the first 3 months of 2022. And while the overall S&P stock index has climbed nearly 40% over its pre-pandemic level, the XBI is down 4%.

Initial public offerings (IPOs) of stock have also taken a hit. Biotech firms that submitted IPOs in the first quarter of 2022 raised just over $560 million, according to data from the DealForma database. By comparison, biotechs that filed IPOs in 2021 raised over $15 billion.

Venture capital funding is also trending down, albeit slowly and from record high levels. Venture capitalists put $5.4 billion into private biotech firms in the first quarter of 2022, DealForma’s data show. This is above the 5-year average of $5.0 billion per quarter, but down from $10.8 billion in the first quarter of 2021.

While new companies can still attract hefty funding, the slowdown may be starting to impact the pace of company creation. Twenty new US-based companies secured first financings in January 2022, down from 55 in January 2021, Atlas Venture partner Bruce Booth reported on his blog, using data from the financial database Pitchbook. This was the slowest January for first financings in over a decade, he noted.

“It’s too early to draw sweeping conclusions. The sky certainly isn’t falling. But I do think it’s a cautionary flag around the pace of startup formation,” Booth wrote.

Facing headwinds, biotech companies are conserving cash where they can. In some cases that means cutting staff.

Over 30 biopharmaceutical companies have announced layoffs in the past 6 months, according to industry newsletters. A wave of cuts this week included re-organizations from three gene therapy companies—Bluebird Bio, Taysha Gene Therapy, and Orchard Therapeutics. Each is decreasing headcounts by 30% or more.

Larger firms are not immune. Biogen has started laying off staff, triggered by the lackluster launch of its Alzheimer’s disease drug, aducanumab.

In January, Daiichi Sankyo announced plans to close its Plexxikon R&D operations in South San Francisco, shuttering the small-molecule outfit that developed the cancer drug Zelboraf (vemurafenib). Daiichi acquired Plexxikon for $805 million plus milestones in 2011.

“It’s pretty evident that we’re starting to see some trimdowns,” Clancy, the recruiter, says, and more layoffs are likely coming. But the sector has attracted so much money in recent years that venture capitalists remain hungry for start-ups, and companies are ravenous for talent. “The train just keeps rolling,” he says.