We are living in an ever-changing technological and economical landscape and the biotech and biopharma industries are bearing the brunt of this in recent times due to major financial changes. Stock market shares are dropping in these industries and this is having a great impact on the way they operate, particularly for start-ups and small to medium companies. In this blog we’ll take a closer look at the stock market impact on biotech and biopharma and everything else you need to know.
Background
Biotech groups raised almost $30 billion combined over the past two years from initial public offerings (IPO), while 33 biotechs that went public in 2021 raised $146 million. These are huge figures that indicated an unprecedented boom in this industry. This meant that many new upstart biotech and biopharma companies had the funds to begin the lifecycle of new drugs that they may never have achieved before.
This was largely due to the COVID-19 pandemic. This sector became overvalued when people were getting excited about the prospect of COVID-19 vaccines and other treatments, with positive news lifting the sector as a whole.
The expectation was that IPO investors would come back for subsequent shares as their drugs got further into the research and development cycle.
While this is an industry that was dominated in the past by stock buyers with a scientific background, who spent time looking at data to pick the best investments, most of this money probably came from general and retail investors. Some have called this “tourism” investing.
Stock market drops
Although this was positive in that it got some small developments off the ground, lots of biotech companies are now struggling to continue as these investors have abandoned their shares. This has resulted in huge stock market drops.
This may have occurred because investors are seeking safer assets as interest rates increase with inflation constantly on the up. Biotech and biopharma may be a big-money sector, but they are considered high risk because there is no guarantee that a new drug will make it through the trial stages or be bought. As a result, venture firms are now being more selective with who they invest in, which is problematic as these are whose specialism is getting startups to an IPO. This is in part due to tough regulations on drug prices that are increasing in severity.
It’s also a possibility that the sector was overvalued with the excitement that the promise of new vaccines brought, without the clinical data to back it up. Some also believe that “tourist” investors are simply less interested in these shares after many vaccines have been approved and distributed.
The impact
This lack of investment in biotech and biopharma companies sees many people move on to invest in different industries and stocks, which lowers interest in this sector in general. Some companies are suffering from a market valuation that is lower than their cash reserves, and some have projected less than a year of funds remaining at their current spending rates.
In particular, this has made finding funding for small and medium companies increasingly difficult and some may struggle to get off the ground at all, failing to make it past the trial stages. Some may not be able to make the significant move from private to publicly traded while others may have gotten this far with the help of large IPOs but cannot go any further as shareholders have not come back for subsequent shares.
How are biotech and biopharma companies going to survive?
Biotech upstarts looking for funding for their work may struggle to find this from the stock market in the current climate, but there are ways they can attempt to tackle this. Experts in the field have suggested biotech companies that are hoping to go public may need to take a cautious approach that they would not have had to consider two years ago. This may take the form of smaller IPOs and a secondary offering. Or, staying private for longer and saving money in the meantime is becoming a more attractive option than ever before. Private investment is not showing signs of being affected by all of this, so not taking the plunge to public may be less risky.
Companies that are already public may consider sourcing investment from other places rather than the stock market, as they will potentially be lower risk. For example, there is a chance that Big Pharma may invest in these small biotech and biopharma companies as it searches for new drugs, but this is reserved for well-performing drugs that have been proven to fill a gap in the market.
Despite the stock market numbers looking less than promising, there will always be room for biotech and biopharma start-ups to increase their profits and develop drugs. This is because global competition in biotech is always going to increase due to an ever-changing pharmaceutical landscape, so government funding is bound to prioritise it as health conditions become more well-researched and treatments become more widely available to reduce the strain on health services.
Moreover, venture capitalists will always exist to pump capital into biotech and biopharma.
Impact on hiring in the industry
With all of these dramatic changes come effects on every aspect of biotech and biopharma companies. If you’re interested in learning about how everything we have discussed here has impacted hiring practices, be sure to read the next part of this special blog series.
Here at CNA International, we are always committed to providing a high-level service that works internationally with clients. We place candidates that we have identified through executive, worldwide searches in various sectors and senior positions, including biotech and biopharma. If you’re interested in finding out more about how we could help your business or career, contact us today.
