The biotech sector has left behind a decade of abundance in its funding and will have to evaluate “new options” to continue growing, according to a study published by McKinsey.
Specifically, the consultancy argues that the sector has thrived over the last decade thanks to the expansion of venture financing, and companies that have been jumping into the market have been able to rely on the stock market, through public offerings (IPOs), to attract capital. However, in the first half of this year, investors have pulled out, slowing down their activity in the sector.
In 2021, U.S. biotech companies raised about $35 billion through venture capital and closed about 100 IPO deals. However, in the first six months of the year, the money raised barely exceeds $10 billion and fewer than fifteen IPO deals have been recorded.
The consultancy stresses that the large influx of capital into the sector over the last decade contributed to the achievement of gene therapies, precision oncology, and hepatitis C treatments, so the industry will have to open up to new investors such as “R&D investment, evaluate new financing options and consider mergers with other biotechs.”
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Mergers or long-term debt are some of the strategies to survive the new phase
Some of the big companies in the sector have already outlined their plans for the new phase. For now, the largest U.S. biotech companies have opted to go on a buying spree. In the first six months of the year, the twenty largest companies made eleven acquisitions of assets without risk or with agreements to moderate it.
“Large mergers and acquisitions in the biopharma sector are likely to increase as the stock market downturn spreads,” the consultancy said. “But this will only be a solution for a handful of companies, not hundreds,” it clarified.
In addition to seeking allies, the consultant recommends cutting expenses in areas such as office space, opting for shared work and lab spaces; travel or salaries, and cutting bonuses. “In the future, we expect more scrutiny from investors on how capital is deployed beyond ongoing projects,” said McKinsey.
Another tool the consultancy suggests for these companies is long-term debt. For all of them, though, McKinsey recommends differentiation. “Assets and platforms that are not differentiated will have difficulty finding capital that can be better deployed in other sectors,” it warned.
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First published in PlantaDoce, a third-party contributor translated and adapted the articles from the originals. In case of discrepancy, the original will prevail.
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