‘By the claws.’ The biotech industry in Massachusetts is in for another tough year.

Because of all this, startups hoping to go public did not dare to step into the stormy and exhausted stock market. Many firms are trying to survive until there is an economic turnaround. Some have passed on recently, including once-promising Colorado cancer firm Clovis Oncology and Cambridge neurological disease startup Faze Medicines.

“There were a lot of good companies at the beginning of last year that had the rug pulled out from under them and they went into survival mode,” said Jeffrey Quillen, a partner with Boston law firm Foley Hoag. from biotech startup formation to stock market debut. By the end of 2022, he said, the biotech industry had “caught up”.

Many of these hangups were represented last week in San Francisco at the JP Morgan Healthcare Conference, the biggest biotech business meeting of the year. Hotel rooms and restaurant kiosks have become boardrooms for companies banking on or banking on a big break with a buyout ― or ― by a larger drugmaker. But it will be harder to find money that flows freely a few years ago. There was an air of uncertainty in the halls, with many predicting that the difficult situation would extend into 2023.

“Because we had a few years of ‘free money,’ a lot of companies that shouldn’t have been funded,” Jean-Jacques Bienaime, chief executive of California drug company BioMarin, said in an interview at an upscale hotel. conference. “You’ll see companies disappear, merge and be acquired.”

Biotech leaders have warned of a washout, and smaller companies across the country, including in Boston, have already filed for layoffs or given up experimental drug programs to buy a year or two. Industry the fundamental problem — too big, too fast growth — isn’t unique to Massachusetts, but the pain is particularly pronounced here because the Boston area is widely considered the epicenter of biotech. But some in the industry say the purge may be healthy in the long run.

Main Street in Kendall Square. Boston’s biotech industry has spilled out of that longtime stronghold into Fenway, Seaport, and the surrounding area.Jonathan Wiggs/Globe Staff

“If our sector is going to take a hit, Boston is squarely in the spotlight,” said Hussain Mooraj, a consultant at Deloitte and head of life sciences in New England. “Unfortunately, some good science will go down along with the bad science, but the industry will get stronger.”

And despite the recession, it’s not like the funding spigot is closing. A recent Massachusetts Biotechnology Council report found that firms are headquartered in the state It attracted $8.72 billion in venture capital funding in 2022, down 36 percent from the previous year, but still the second-highest year on record.

Many of these companies are based on emerging ideas for the treatment of cancer or immune diseases. Others are creating new or improved forms of genetic therapy or using artificial intelligence to design drugs.

However, the picture for initial public offerings was dismal, with only eight biotech companies in the state going public last year, compared to 25 the year before. Bigger life science firms were also reluctant to make big acquisitions last year, with 26 Massachusetts-based biotech companies buying about $5.9 billion in 2021, compared with 34 worth about $64 billion in 2021.

Many industry leaders hope financing and acquisitions can return as soon as this summer, but expect it will take longer to develop an appetite for IPOs. Leaders point to a number of potential national and global concerns change this forecast, including inflation, rising interest rates, the specter of a recession, the war in Ukraine, tensions in Congress, and legislation on drug prices.

“These are issues weighing on the sector,” said Barry Greene, chief executive of Cambridge-based Sage Therapeutics. “And it’s very difficult for Wall Street to cover a sector with all the uncertainties.”

Many companies are trading at a fraction of their peaks, dragging their total stock values ​​below the amount of cash they have and ticking the timers toward bankruptcy. Lexington-based Concert Pharmaceuticals, which had barely enough cash to survive until June, was acquired by Indian drugmaker Sun Pharma.

“There was a massive overcorrection,” said Andrew Hedin, an investor at Bessemer Venture Partners in Cambridge. “The overall condition of the industry is still very strong. There’s a lot to be excited about when you think about the scientific advances that have been made in the last decade.”

“These are issues weighing on the sector,” said Barry Greene, chief executive of Cambridge-based Sage Therapeutics, referring to the biotech industry. “And it’s very difficult for Wall Street to cover a sector with all the uncertainties.”ANGELA WEISS/AFP via Getty Images

When the valuations of smaller biotechs fall significantly and larger drugmakers are flushed with cash, investors expect big pharma to go on a buying spree. “Those sitting on cash have a great opportunity to get a deal,” said Chris Caruso, a partner at Deloitte who focuses on life sciences mergers and acquisitions. “Some of the battered companies are likely to be targeted.”

Although it feels like a buyer’s market, the buying wave has yet to materialize. Two small Massachusetts biotech firms, Albireo and CinCor, were acquired by larger European drugmakers last week, marking a slow start to the normally busy season for biotech business deals. As Cincor CEO Marc de Garidel told the Globe, pharmaceutical firms “seem to be quite selective in what they want.” Hypertension pill maker Cincor has been acquired by AstraZeneca for $1.3 billion.

Partnerships and collaborations between large and small firms are becoming more common, experts said because large firms seek to invest in new science without the financial risk of directly buying a company whose experimental treatments may ultimately fail. Even biotech firms that wanted to go it alone a few years ago see such partnerships as a lifeline for their dwindling coffers.

“We look for partners where it makes sense,” said Chris Round, president of EMD Serono, the Rockland-based U.S. healthcare business of German life sciences giant Merck KGaA. “And as we go into tougher economic times for the next few years, I think we’ll probably do more, as will others.”

Many leaders of mid- and large-sized biotech firms, relatively protected from funding cuts, see the coming collapse as a natural and necessary part of the boom-and-bust cycle. Companies built on a single hypothesis or a few experiments don’t need to last, these executives say.

“Pruning them is a good thing,” said Richard Pops, chief executive of Alkermes, an Irish drug company headquartered in Waltham, US. “Companies with good science can raise capital, but the cost of capital will be outrageous,” he added, because they may have to sell their shares at very low prices.

The layoffs that began to mount in the biotech industry last year are likely to continue for cash-strapped companies. But Massachusetts executives say they’re having such a hard time filling open positions that they’re not worried about unemployment in the sector. “There’s so much demand it’s crazy. This is a war for biopharmaceutical talent,” Green said.

A woman’s reflection is seen through a colorful sticker on a window in Kendall Square on November 7, 2021.

Jessica Rinaldi/Globe Staff

Seth Ettenberg, chief executive of Bayer’s Cambridge-based stem cell subsidiary Bluerock Therapeutics, said several years ago that he would extend job offers and candidates would come back with three to five other offers. This may no longer be the case, and job seekers may need to be less selective about who they work for, as well as less demanding of benefits such as working from home.

Biotech-focused venture capitalists say they will continue to invest in new startups, but are wary that money won’t flow as freely, especially for a third, fourth or fifth startup trying to solve the same problem or working on similar technology. competitors.

“As the investment bar rises, fewer companies will be funded. But by definition, the quality of what gets funded also goes up,” said Jorge Conde, senior partner at California venture capital firm Andreessen Horowitz. “And hopefully they will be more focused and stronger.”

Rupert Vessey, president of research and early development at Bristol Myers Squibb, which opened a new research site in Cambridge this year, doesn’t expect scientific progress at local startups to slow down. “The Boston-Cambridge ecosystem is incredibly strong and innovative, and there is such a critical mass of company-building skills that I’m confident the ecosystem will come through this period and still be an industry leader.”

That view that the region’s biotech industry will weather the storm has been echoed by many investors.

“Boston continues to be the biotech capital of the world,” Hedin said. “That’s not going to change anytime soon.”

Ryan Cross can be reached at ryan.cross@globe.com. Follow him on Twitter @RLCscienceboss.

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