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  • Writer's pictureHarris Kaplan

BIO 2024: A Story of Haves vs Have Nots



Overall, the mood of many biotech CEOs at BIO 2024 was hopeful optimism, especially compared to the investment “winter” that was 2022/2023. There are deals to be made. Both venture funds and strategics are sitting on piles of cash waiting to be deployed, but, so far in 2024, dealmaking among venture and strategic investors remains cautious as they seek to de-risk investments before investing.


This article, Biotech Venture Financing Hasn’t Loosened Up Yet, published June 6 in the Wall Street Journal, sums the situation up nicely.


The investment landscape in the biotechnology and pharmaceutical sectors has indeed shifted significantly from the more exuberant environment of 2021 to a more cautious and selective stance in 2024. This change, driven by both macroeconomic factors and industry-specific challenges such as the inflation reduction act, but also by significant revenue underperformance of new products launched in the last three years, has important implications for innovation and financial returns.


The Current Investment Climate Could Have a Potential Negative Impact on Much Needed Innovation


  • Selective Investments: Investors now favor companies with proven teams or assets that are further along in clinical trials. They also favor companies operating in established markets, even as those markets become crowded with new entrants.  This conservative approach prioritizes short-term stability over long-term innovation, potentially stifling groundbreaking but higher-risk ventures.

  • Early-Stage Funding: Early-stage startups, which are often the most innovative, continue to struggle to secure funding. First time CEO’s are challenged to convince investors in the value of their ideas, new products, and companies. Investors, instead, are invest large amounts in CEO’s and teams with a proven track record of successful exits. It’s definitely a case of “Bet the Jockey, Not the Horse.”  Longer term, this could slow the pace of new discoveries and the development and launch of differentiated new products.

  • Incremental Innovation: Investment in large, established markets which are increasingly crowded may lead to incremental improvements rather than disruptive innovations. While these investments are safer, they may not drive significant technological or therapeutic breakthroughs. Even with strong management teams, companies launching with later entrants into crowded markets will face significant challenges commercializing their new products and, as a result, underperform in delivering the financial returns that meet investor expectations.


The View from the Crow’s Nest


In the BIO 2024 landscape, new science breakthroughs, an uptick in positive clinical data readouts, the potential for lower interest rates, and the promise of AI in drug development created an optimistic tone that seemed to eclipse current industry concerns about the inflation reduction act and Medicare’s growing pressure on drug prices.


Many strategic and venture investors are anxious to make investments, but 2024 is not 2021 and investors are being far more selective in which companies they invest or consider for more strategic relationships. Biotech investors current conservative investment stance, while understandable, poses risks to innovation in the biotech and pharmaceutical sectors as first time CEO’s or highly innovative, but early-stage companies struggle to get funding.


The current environment also offers investors the unique opportunity for strategic rethinking regarding the balance between risk, investment, and reward. It is my hope that both VC and strategic investors will evaluate their portfolio investment strategies in light of the need for new and highly differentiated products that address important medical needs. There are many diseases and patients awaiting new and better medicines


I welcome your comments and thoughts. Let’s start a conversation.


 
Author: Harris Kaplan, a managing partner in Spinnaker’s Minneapolis office

If you are interested in learning more, get in touch at strategy@spinnakerLS.com. 

Spinnaker offers true partnership and comprehensive guidance to help leaders navigate the complexities of the Life Sciences industry and chart a path to success. From early-stage market assessment through commercial execution and ongoing lifecycle management, we deliver tailored solutions to ensure optimized practicable results.
 

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