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Biopharma Therapeutics & Platforms Paradigm

by Feb 2, 2023Analysis, Funding

Biopharma Therapeutics & Platforms Paradigm 

Biopharmaceutical companies that develop new therapies and health technologies are essential for advancing drug development in its early stages. That’s why US biotech firms are highly sought after by private equity firms, venture capital companies, and institutional investors. In the last two years, biotech funding and investments have reached historic highs, leading to an increase in IPOs and an overall positive outlook.

It’s widely known that the biotech industry heavily relies on initial public offerings (IPOs) to secure the funds needed for clinical drug development, which also provides venture capitalists with returns and the opportunity to fund new biotechs. Since the early 2010s, the IPO market has become more favorable towards biotech companies due to scientific advancements and an influx of investors. For a decade, biotech companies and their backers experienced remarkable growth and success, with drugmakers going public at high valuations.

Despite the COVID-19 pandemic’s impact in 2021, over 100 biotechs still went public, raising the necessary capital to sustain. However, the momentum has slowed down as the stock prices of newly public biotechs declined in late 2021, leading to a decrease in interest in biotech IPOs throughout 2022 and a slowdown in offerings.


Platform vs. Product-Focused Drugs

Platform companies, which aim to apply foundational technology across many drugs for various diseases, have garnered significant investment in recent years. Investors saw biotechs like Moderna as having a higher chance of success. However, as the market downturn persisted last year, some investors have become less receptive to platform companies and their often sprawling drug pipelines.

As we move into 2023, venture capital firms in biotech no longer favor platform companies built around technology to support multiple drugs. Instead, there is a trend towards product-focused biotech firms. Platform companies can be expensive and take a long time to develop, leading to a dilution of value for investors if the company fails to generate revenue between funding rounds. The shift to product-based biotech aims to create value and minimize dilution for investors.

From 2019 to 2021, venture capital companies invested over $52 billion in biotech firms focused on therapies, with two-thirds of the funds going to startups with innovative platform technologies. Investors are interested in technologies that enable personalized treatments to be delivered precisely to specific targets in the body.

Deal Financing Priorities

Top Biopharma Technologies for Venture

Looking ahead to biopharma technologies in 2023, there are six areas that are generating considerable interest due to their promising performance in 2022:

    • Innovative strategies are being developed to target “undruggable” proteins and diseases that are difficult to treat, such as Gene editing and crisper. These modalities are showing great potential to deliver novel therapies with precision and safety, with the highest average round at $87M.
    • Next-Gen gene therapies that can edit and modulate DNA and RNA are demonstrating their potential to potentially cure genetic diseases. They closed at an average round of $69M in 2022.
    • Cell therapy is another area that has gained significant attention. With an average round of $54M, it is being used to target disease tissues in a broader range of solid tumors.
    • Immunotherapy in drug discovery, enabled by machine learning (ML), is helping to accelerate the discovery and development of new drugs. This promising area closed at an average round of $52M.
    • Precision medicine is another exciting area of focus, particularly in the development of small molecules that can diagnose conditions earlier and tailor therapies to specific genetic profiles. Precision medicine rounds averaged a little over $53M, just behind immunotherapy.

Changing The Face of Dealmaking – Biopharma Therapeutics & Platforms

The world of dealmaking in Biopharma Therapeutics and Platforms is experiencing a significant transformation, driven by various challenges faced by startups and investors. From a downturn in public markets to the impact of the Inflation Reduction Act, there are several factors causing concern this year.

IPO Activity - Therapeutic Platforms and Biopharma

One of the key challenges has been a decline in the number of IPOs in Biopharma Therapeutics and Platforms. Although the total number of IPOs in 2020 and 2021 was higher than in the last five years, 2022 has seen a decrease in the number of IPOs, with fewer than 20 so far. While the number of IPOs had declined in 2017, it had surpassed the 2014 high point by 2018.

For the biotech industry, IPOs are crucial as they provide young companies with the funds they need to develop their drugs while offering venture capitalists a chance to earn returns. Until recently, the biotech industry and its investors had benefited from favorable market conditions. However, with stock prices of newly public companies dropping in late 2021, and interest in biotech offerings declining throughout 2022, momentum has slowed down. This resulted in a slower pace of IPOs, making it harder for emerging drugmakers to access public markets. In 2022, only 23 drugmakers were able to price new offerings.

The biotechnology industry experienced a significant drop in the number of Initial Public Offerings (IPOs) in 2022, as fewer than twenty-four companies priced IPOs, representing an 80% decline from the previous year. The closed public markets compelled several biotech firms to seek funding from their venture backers, but unfortunately, some had to halt operations due to insufficient funds. By the end of the year, over a hundred biotech companies were forced to lay off employees. While there were some bright spots, such as Takeda’s acquisition of Nimbus Therapeutics’ drug for $4 billion, the private biotech sector faces considerable challenges in 2023. Experts predict the possibility of a repeat of last year’s difficulties due to the possibility of a recession.

IPO Averages by Stage of Company's Lead Product


IPOs To Come Back Strong

Despite a slowdown in the number of IPOs in the biotech industry in 2022, recent data on IPO averages suggest that substantial biotech firms are taking advantage of the current situation and completing more rounds, leading them to the end of the IPO spectrum and the approved market stages. However, investors are uncertain whether the biotech industry will see the same boom it experienced in 2020 and 2021 due to the economic recession.During the last two years, over 200 companies went public, but this number dropped significantly in 2022, with just 23 companies making their debut. The decline can be attributed to various factors such as companies that had already gone public struggling to maintain their value, clinical and regulatory setbacks, and macroeconomic forces leading to reduced investor confidence. Some industry experts believe that returning to the more modest IPO pace of previous years would help the industry, which currently has a surplus of cash-burning companies.The decision of companies to debut on Wall Street is contingent upon two preconditions: market performance and investors’ risk appetite. However, without an easy path to IPO, young biotech companies and their backers may find dealmaking more appealing. Thus, while the number of IPOs may not be as high as it was in previous years, the biotech industry continues to forge ahead, and the potential for growth and success remains strong.


Ventures – Slower Pace to Continue?

Venture Totals - Therapeutic Platforms and Biopharma

The biotech industry is facing a continued slowdown in private and public financing, leading to lower deal values in 2023. The access to capital that was abundant in 2019, 2020, and the early part of 2021 is unlikely to return anytime soon. In 2022, venture capital (VC) investments in more than 300 Biopharma Therapeutics and Platforms totaled $22.3 billion, a significant decline from the record-high of $42.9 billion in more than 750 deals in 2021. In the final quarter of 2022, only $4.4 billion was invested in 98 deals, compared to $8.9 billion and 157 deals in the same period of the previous year.


Will the Pace of Private Funding Continue to Slow Down?

Top Therapeutic Areas for Venture

As the biotech industry enters 2023, the pace of private funding is expected to continue slowing down. While venture investment in biopharmaceuticals was promising in 2022, much of the investment occurred in oncology and neurology, and the lower volume in deals is likely to extend to other sectors this year. However, despite the decline, the number and total value of investments in 2022 remained above 2020, indicating that investors may be allowing their previous bets to play out before backing new companies in the same fields.


Average Venture Rounds - Therapeutic Platforms and Biopharma

Companies that raised Series A rounds in 2020 and 2021 would typically need to return to their backers for Series B rounds in 2023. However, a small flurry of Series A extensions at the end of 2022 suggests that biotechs are still collecting data before attempting a fresh round of private funding. If more private financing rounds emerge in the second half of 2023 as startups hit milestones, investors will have an opportunity to gauge signal versus noise.

The funding environment for healthcare-related industries in 2023 is expected to remain challenging due to macroeconomic factors such as the geopolitical environment, interest rates, and inflation. High borrowing costs are likely to create a bifurcation in the industry between companies that can survive on their earnings and those that cannot. The inflated cost of capital and lack of high-quality data could make offerings difficult. Rising interest rates pose a significant risk to early-stage biotechnology companies, reducing risk-based capital and valuations, which could stall clinical programs and make funding decisions difficult for life sciences executives.



Funding Environment Economics

The funding environment for healthcare-related industries in 2023 is expected to remain challenging due to macroeconomic factors such as the geopolitical environment, interest rates, and inflation. This could lead to borrowing costs being high, creating a bifurcation in the industry between companies that can survive on their earnings and those that cannot. Additionally, the inflated cost of capital and lack of high-quality data could make offerings difficult.

Furthermore, rising interest rates pose a significant risk to early-stage biotechnology companies, reducing risk-based capital and valuations. As a result, this could stall clinical programs and make funding decisions difficult for life sciences executives. The current interest rate environment has created a “risk-off” sentiment, leading to a shift towards safer investments that are expected to persist until rates recede.

The landscape for biotech firms seeking to go public has changed significantly in the past year. The industry has been impacted by the decline in stock prices, causing a slowdown in the number of IPOs that had reached record highs in the previous two years. Young pharmaceutical companies can no longer secure the high evaluations they received in 2022 when they and their backers could quickly make their way to the stock market.

However, biotech startups that develop new drugs improve science and healthcare, create job opportunities, and stimulate economic growth in their local areas. Despite being smaller than significant companies, biopharmaceutical startups offer high-skilled and high-impact jobs that positively impact the regional economy. In this manner, these venture-supported businesses bring the double advantage of scientific progress and economic expansion to communities across the country beyond just the established biopharmaceutical centers.


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