Year of biotech layoffs leaves industry looking for spark

The J.P. Morgan Healthcare Conference, held in San Francisco each January, often serves to spark the biotechnology and pharmaceutical sectors, boosting investor enthusiasm for the industry.

Conditions may be more difficult for such a spark to take hold in 2024 after a year in which more than 120 public biotech companies laid off staff. At least a dozen more private drugmakers made similar decisions amid a funding crunch that all but closed off opportunities to go public.

Overall, biotech layoffs claimed at least 10,000 jobs within the sector last year, according to data compiled by BioPharma Dive. Many of those jobs were at smaller biotech companies more vulnerable to investor pullbacks. But larger and better-funded drugmakers also proved susceptible, with companies like Sage Therapeutics, Novavax, Apellis Pharmaceuticals and Beam Therapeutics cutting back, too.

The pace of layoffs easily eclipsed 2022 over the first six months of the year, and continued through the fourth quarter, when at least 32 companies shed staff. An August report from the investment bank Stifel found that layoffs were 81% more common over the first seven months of 2023, versus 2022.

Major pharmaceutical companies weren’t immune either. Amgen, Roche and Novo Nordisk laid off staff early in the year, while in July Biogen began a major restructuring meant to reduce the company’s workforce by about 10%. Pfizer, amid sliding sales for its COVID-19 products, in October unveiled layoffs and sizable cost cuts.

Pharma company layoffs eliminated at least 4,000 more roles, although some of those cuts haven’t yet taken place or involve unfilled positions.

BioPharma Dive compiled its count via company statements, regulatory filings and “WARN” notices filed with states. In cases when a biotech only disclosed the percentage of its workforce affected, BioPharma Dive calculated the approximate number laid off using the most recent employee count given in regulatory filings. The job loss estimates also don’t account for any hiring subsequently done by companies.

Layoffs aren’t uncommon in the drug industry, where clinical trial setbacks often lead to research restructurings and workforce reductions. But a confluence of financial headwinds, including high interest rates in the U.S. and tepid demand for biotech from generalist investors, exposed many companies over the past 18 months.

Venture capital investors invested less money in private biotechs across fewer deals last year than in 2022 and 2021, according to data compiled by J.P. Morgan in a report released Friday. Companies found their backers required greater discipline and clearer line of sight to milestones like beginning clinical trials. Crossover investors, who often help fund startups en route to an IPO, pulled back.

“For the companies that have already secured a seed or a Series A round and are preclinical, I think they need to find a way of identifying a lead asset and getting it into the clinic and have some initial data for investors to sink their teeth in,” said Jon Norris, managing director at banking and financial firm HSBC.

In past years, those kind of companies might have been able to consider an IPO. But that wasn’t the case last year, when only 19 biotechs successfully priced an initial offering, according to BioPharma Dive data. About one-third were already in Phase 3 trials, suggesting investors preferred backing less risky companies.

While large venture rounds were still announced this year, Norris noted how in some cases the funding is designed to insulate companies from the market. “These big rounds that you’re seeing — $100 million, $200 million or bigger — it’s not necessarily because the company needs that money right away,” Norris said. “It’s trying to put to bed any financing risk that’s near-term for the company.”

Companies already public, meanwhile, saw their financing options curtailed by a sector stock market that spent much of 2023 in the red, limiting secondary offerings.