PharmaVoice’s Crystal Ball: Perspectives on the financial future

One of the most important questions hanging over the biopharma industry this year is how and if the financial environment will improve.

After a pandemic-era boom triggered a sudden rise in the number of innovative companies and therapies in development, the biotech market has taken a solid beating for the last few years. Many investors have fled the space, scores of startups have closed shop and macroeconomic headwinds are intensifying. 

How quickly will biotech’s bruises heal? Will more companies go down from the fight or has the market reached a new equilibrium?

Meanwhile, even the established pharma giants are wringing their hands over the impact of the IRA, high interest rates, a looming patent cliff and the impact of the 2024 presidential election.

Last week, we ran an in-depth look at how analysts see the investment market shaping up in 2024. Today, in the first installment of our annual outlook, we’re hearing from the industry’s leaders on how they see these factors impacting pharma and biotech companies — large and small — in the coming year.

Biotech will start to recover — with some bruising

“We are confronted with the ironic juxtaposition of the commercial pharma sector being relatively flush with cash and developmental biotechs woefully short of cash and struggling to raise capital. Funding headwinds are a consequence of investor concerns over higher real interest rates and the bruising losses in biotech valuations. Additionally, disincentives in the Inflation Reduction Act further compounded weak biotech valuations. While interest rates appear to have peaked, the scarcity of institutional capital is likely to drag on through 2024 because there are some 200 listed biotechs still trading at negative enterprise values. This capital market indigestion will have to clear before the biotech markets return to more normal funding behavior, albeit with lower valuations.”
Robert Fallon, CEO, president, Promontory Therapeutics

2023’s problems will hang around in 2024

“While I remain the ultimate ‘bull’ on the future of our industry and its positive impact on society, 2024 will be another challenging year, but hopefully our last. COVID-19 solutions provided significant short-term cash flow to our industry that has now sharply ended. I would be more optimistic for 2024 if it weren’t for the overhang of a general economic recession in the U.S. and elsewhere. Fortunately, I believe it will be sharp, but also short-lived, [and that] biopharma players — large and small — will use this time to finish their rightsizing, setting up a positive bounce back in 2025. And while this is my prediction for 2024, I hope I’m wrong, and that we can return more rapidly to strong growth.”
Jim Lang, CEO, EVERSANA

CEOs will have to hone financing strategies

“Despite uncertainties that threaten the biopharma M&A pathway and IPO market, venture capitalists have money they need to put to work. Private biotechs with promising science, proven management teams and a track record of achieving milestones should be well positioned to access that capital. That noted, if securing a new financing round is necessary in 2024, pounding the proverbial pavement will likely turn into a full-time job for the CEO, and closing the deal may take far longer than anticipated. An accomplished, disciplined team and strong C-level bench will free the CEO to ensure the company’s future financial health, but that CEO must trust the team to execute. Private companies that can successfully manage these uncertain times will thrive.”
Joe Truitt, CEO, iECURE

Buzz will swirl around the IRA, IPOs and AI

“The lawsuits against the drug price ‘negotiation’ provisions in the IRA will be in the news during an election year, creating heated rhetoric from all sides. These suits will eventually be taken up by the Supreme Court, although probably not in time to be decided before the November election. The IPO window will open a crack, which will release a little pressure in the private financing markets, but we will not come close to the euphoria levels of 2020-2021. Several high-profile, AI-driven healthcare companies will be launched to much fanfare, and then nothing will be heard from these companies for years until they quietly shut down. Meanwhile, the rest of us will be quietly in pursuit of innovative treatments for unmet needs.”
Robert Jacks, CEO, Sparrow Pharmaceuticals

Generalist investors could return

“The biopharma sector is poised for a potential turnaround in 2024 but not without challenges. Currently trading near its 52-week low, the XBI reflects one of its lowest levels since 2017, and healthcare fund flows remain negative. Positive clinical data releases coupled with the upcoming impact of patent cliffs on key players and the consolidation of platform technologies are anticipated to support a positive trend in M&As and generate excitement in biotech. However, the full realization of this positive momentum hinges on the redeployment of investor returns, a process that takes time and yields delayed effects. The lingering departure of generalist investors due to interest rate hikes remains a substantial obstacle, impacting the sector’s risk profile. Although a slow return of generalists in 2024 is conceivable through a combination of the above catalysts, prompt and favorable macroeconomic conditions, including rate cuts, would expedite and enhance the recovery process.”
Alexander Seelenberger, CFO, Vincerx

Pharma’s new stars will take center stage

“2024 will see a significant shift in M&A activity from a previous focus on COVID-19 vaccine and drug manufacturers to weight loss drug producers. Manufacturers of weight loss drugs such as Eli Lilly and Novo Nordisk saw a significant uptick in interest in the second half of 2023, which has set them up to be the stars of the pharma industry next year. Both companies also have Alzheimer’s franchises, so we could see them reinvest a lot of their profits into their current portfolios while also seeking other promising candidates.”
Jeff Fischer, president, Longhorn Vaccines and Diagnostics

 

More companies will converge

“A lot of consolidation occurred in the small and medium size biotech space in 2023 due to external market and economic forces. This trend will likely continue into early 2024, forcing companies to hone their efforts in areas with high potential and high unmet medical need. We see the emerging data in the Hepatitis B cure field as exciting, buttressing our own efforts in the space and reconfirming the need for companies to continue to invest in combination strategies.”
Dr. David Margolis, chief medical officer, Brii Biosciences

Digital therapeutics companies could bypass FDA

“In 2023, Pear Therapeutics filed for bankruptcy and Akili abandoned the prescription business model. Both Digital therapeutic (DTx) companies raised hundreds of millions by going public in SPAC transactions. While each company successfully gained FDA approvals, market acceptance for prescription digital therapeutics is low and improvements will take years. Given this, many DTx companies will pivot away from the prescription model and go straight to consumers next year. They will run clinical trials to confirm their claims and value proposition but will not seek FDA approvals.”
Joel Morse, CEO, co-founder, Curavit Clinical Research

Supply chains will consolidate

“In 2024, I believe a convergence of factors is poised to propel supply chain consolidation. Our industry will continue to receive regulatory expectations for substantial price concessions in the best interest of patients, which is at odds with increased costs, hurdles in the supply chain and shortages and bottlenecks to obtaining raw materials. It will be essential for us to establish a supply chain network that can mitigate these issues and ensure quality control across the product manufacturing process to reduce the risk of failures and recalls.”
Roger Bakale, senior vice president, manufacturing and supply chain, Kura Oncology