Navigating the financing doldrums in 2024

“In many respects,” says Jeffrey Quillen, “2024 was a lot like 2023.”

Quillen is a partner and cochair of the life sciences practice at the law firm Foley Hoag. He largely advises middle-market companies, and for most of them, “it was survival mode for the first three quarters.”

The biotechnology world is nearing what many hope is the end of a very long hangover. In 2020 and 2021, when the world shut down because of the COVID-19 pandemic and generalist stocks like retail and travel plummeted, life sciences stocks soared. That growth was spurred in large part by the high- profile successes of COVID-19 vaccine makers Pfizer and Moderna, but those years also saw scores of young biotechs holding initial public offerings on little more than mouse data. Then, in 2022, as many of those biotechs fizzled out and inflation and unrest took hold globally, that froth gave way to flatness—and almost 3 years later, that’s still the story.

A “haves and have-nots” dynamic is also enduring. Uncertain financial times lead investors to favor bets they feel are less risky. In biotechnology, such bets typically trend toward experienced management teams and later-stage assets, like drug candidates that have already been tested in humans. Young founders with preclinical work are often left out.

In the first three quarters of 2024, biopharmaceutical companies collectively raised $20.8 billion across 561 deals, according to PitchBook’s latest Biopharma Report. In contrast, 3 years ago, in 2021—the height of the pandemic-driven biotech fervor—biopharma firms raised $54.1 billion across 1,630 deals. The third quarter of this year saw both more money and more financings than the second, but that rise was mostly attributable to a handful of megarounds—financings topping out at nine figures or more.

“There definitely is a bias towards later-stage clinical assets and management teams that have a track record of both clinical and financial success,” says Daphne Zohar, who founded and led PureTech Health for 19 years before stepping away in April to launch the neuroscience start-up Seaport Therapeutics. Seaport is among the haves: it raised $100 million in its series A round and $225 million in its series B just 6 months later.

The biotech downturn has resulted in a multiyear spate of layoffs. As of Dec. 2, the trade publication Fierce Biotech had tracked 178 rounds of layoffs since the start of the year, nearing the 187 layoffs it tallied in 2023. Workers for pharmaceutical giants were not spared: Pfizer, Bayer, and Takeda Pharmaceutical all made cuts.

Pearl Freier is president of the executive search and recruiting firm Cambridge BioPartners. She’s also on the scientific advisory board of the Griffin GSAS Harvard Biotech Club, which aims to bridge the gap between academia and the biopharmaceutical industry for Harvard Medical School researchers. The club puts on a career fair each fall, but this year, it was difficult to find companies that were hiring, Freier says.

“Losing Takeda and losing Bayer as potential hirers has been tough,” she says. “There’s just a lot of uncertainty.”

The public markets have not been friendly either. As of Dec. 3, 24 life sciences companies had raised money via initial public offerings (IPOs), according to a tracker maintained by trade publication BioPharma Dive. Most of their stocks were performing far under where they’d debuted.

President-elect Donald J. Trump’s administration will bring with it several changes that are sure to affect the biopharmaceutical space. Some industry watchers are concerned that the uncertainty brought by the oncoming change will dampen IPO prospects even further. By late November, as Trump’s transition was beginning to take shape, major biotech stock indexes, like the SPDR S&P Biotech ETF (XBI) and the Nasdaq Biotechnology Index, had fallen faster than the Dow Jones Industrial Average.

“I’m trying to be optimistic in terms of Washington, but I really don’t know how that might impact things, especially if there’s some kind of news that ends up dramatically impacting stock prices,” Freier says. “Not being able to have much of an IPO market has definitely impacted the industry.”

Trump’s nominations for federal agency leaders will also change how drugmakers interact with regulators. Robert F. Kennedy Jr.’s nomination to lead the Department of Health and Human Services has already ruffled many in the life sciences who worry that his antagonism toward vaccines and glucagon-like peptide 1 (GLP-1) receptor agonists, among other things, will slow drug development.

“Personally, I am trying to remain neutral and open minded,” Zohar says. “I think we will need to work with the new administration, and it’s easier to have a dialogue and influence if all parties are at the table.”

One party the industry will hope to work with is the new head of the Centers for Medicare and Medicaid Services, who will be responsible for enforcing new drug-pricing measures that were passed as part of the 2022 Inflation Reduction Act (IRA). Many in the biopharmaceutical industry deride the law, in large part because of language that pits small molecules against biologics—larger biological molecules, such as peptides and antibodies, that are derived from living cell lines, which makes them harder and more expensive to manufacture than small molecules. The IRA allows Medicare to begin negotiating the prices of small-molecule drugs with their manufacturers after 9 years of exclusivity, but biologics enjoy 4 more years—13 total—which many in the industry term “the small-molecule penalty.”

Pharma companies and lobbyists have spent the past 2 years trying to change that language or get the law overturned wholesale. Stephen J. Ubl, president and CEO of the trade group Pharmaceutical Research and Manufacturers of America (PhRMA), calls the IRA’s drug-pricing measures “flaws” in a statement emailed to C&EN, arguing that they “are undermining our world-leading innovation ecosystem.”

Meanwhile, executives like Zohar hope Trump will replace Lina M. Khan as head of the Federal Trade Commission (FTC), contending that Khan’s antitrust approach has had a chilling effect on mergers and acquisitions. The prospect of a new FTC head is “a big positive,” Zohar says.

M&A activity is on par with the levels seen over the last few years and has begun to pick back up. The first three quarters of 2024 saw 56 biopharma acquisitions, compared with 53 in 2020, 57 in 2021, and 42 in 2022. Last year was an outlier year, with 91 acquisitions. But there’s enthusiasm for more, largely because large pharmaceutical companies are staring down several major patent expirations. They’ll need to fill their pipelines to counterbalance the coming loss in revenue as more generics come on line.

“There’s a lot of high-quality companies that are really cash starved and struggling but have very good assets,” says Quillen of Foley Hoag. “Companies that can raise money or have money can probably go on a shopping spree. There’s a decent chance that could happen in 2025.”