The biotech industry is facing a stark contrast between the robust state of scientific innovation and the challenging financial and economic environment, according to the latest EY Beyond Borders reportEY Beyond Borders report. While exciting advancements continue in areas like cell therapies, gene editing, mRNA technology and novel drug modalities, many biotechs are struggling to access capital as general investors have pulled back from the sector.

Key findings from the report paint a divided picture:

  • Companies with experimental drugs in late-stage trials saw share prices rise over 20% from late 2021 to early 2024, while those in Phase 1 lost 19% of their value
  • 31% of biotechs have less than a year’s worth of cash, up from 18% in 2021, putting them in a precarious position
  • Biotech funding declined 54% in 2022 to $54.6B, the lowest level since 2016
  • IPO funding virtually disappeared, plummeting 93% in 2022
  • Over 90% of biotechs that went public in 2020-2021 are now trading below their IPO price

Despite the financial challenges, the report notes that biotech’s underlying innovation engine remains strong. The clinical pipeline contains over 20,000 drug candidates globally, with new therapeutic modalities rapidly advancing. Cell and gene therapies, mRNA platforms, radiopharmaceuticals and antibody-drug conjugates represent some of the most promising approaches that could transform patient care in the coming years.

For biotech to sustain this innovation, however, the financing environment will need to rebound. The EY report suggests lower interest rates in the next 6-12 months could help spur a recovery in biotech investment. But a return to the exuberant times of 2020-2021, when even early-stage biotechs could raise large sums at high valuations, seems unlikely.

In the meantime, biotechs will need to focus on extending their cash runways, generating strong clinical data, and demonstrating their value proposition to potential partners and acquirers. Strategies like utilizing variable cost structures, leveraging technology and growing teams responsibly can help biotechs weather the storm. Those with proven management teams and differentiated pipelines will be best positioned to secure deals and investment.

As biotech companies look to control costs, the Chicago area and state of Illinois are well positioned to support the industry’s growth. With a highly educated workforce, world-class research institutions, and a growing lab infrastructure, the region offers an attractive environment for startups and established players alike. Chicago boasts more affordable lab space compared to crowded hubs like Boston and the Bay Area. And with an extensive network of universities and medical centers, companies have access to diverse talent across scientific disciplines. These advantages could make Chicago and Illinois an appealing destination for cost-conscious biotechs seeking to advance their pipelines in the current climate.

Ultimately, the long-term outlook for biotech remains bright given the strength of the underlying science. But navigating the current financial challenges will require discipline, efficiency and a clear articulation of value. The companies that emerge from this downturn with solid fundamentals and innovative assets will be poised to lead the next wave of medical breakthroughs.

This article was originally published on iBIO NewsBrief. Gain a head start on your day with iBIO NewsBrief. Subscribe to receive top industry headlines delivered straight to your inbox.

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