Talks of a bear market in the biotech sector do not seem to pass, with news of companies falling into administration and layoffs becoming a recurrence. Just last week, trading for 4D Pharma, a British biotech, was suspended on the London Stock Exchange’s Alternative Investment Market, and the company will be delisted from NASDAQ on July 7. Elsewhere, San Diego, California-based Heron Therapeutics announced restructuring and layoffs for 34% of its workforce. Other businesses such as Redhill Biopharma and Vincerx Pharma have also announced plans for large layoffs.
While bear markets and financial volatility are not new in biotech, rising interest rates, growing inflation, and the war in Ukraine have all fueled uncertainty in recent times. This is particularly felt among smaller retail investors. What’s more, this comes after a period of heightened interest in the biotech sector during the Covid-19 pandemic, which saw a number of companies going public with successful initial public offerings (IPOs).
A bear market takes place when securities drop by 20% or more in their value from the latest high.
At the moment, biotech C-suite executives agree that the bear market may impact more companies in the future. Others may have to adopt leaner structures, and financial prudence appears to be a must, they note.
Weathering a storm of uncertainty
“We’re in choppy waters,” says Jeremy Skillington, CEO of British biotech Poolbeg Pharma. According to Skillington, the Covid-19 pandemic saw heavy investment in healthcare, and there is likely a certain switch to other directions. Adding to this, other events like the worldwide energy crisis and the ongoing conflict in Ukraine have led to global uncertainty, Skillington tells Pharmaceutical Technology.
At the same time, corrections are a natural aspect of the market, Immutep CEO Marc Voigt tells Pharmaceutical Technology. He notes that there were preclinical stage companies that possibly went through an IPO with a degree of exaggeration. This period of hype saw companies going public earlier, which could explain why we may see some companies being merged or bought out, says Jason Foster, CEO of Ori Biotech, a private cell and gene therapy manufacturing company. Ori raised over $100 million in a Series B as announced in January 2022, which Foster says was at the end of this increased funding window. Foster also notes to Pharmaceutical Technology that clouds of a financial downturn became visible in August 2021.
Overall, the NASDAQ Biotechnology Index fell by 24.72% in the past year, and by 19.26% in 2022 to date. The bear market has also impacted venture capital investment into private pharma companies.
But while this financial downturn in biotech is not different from similar downturns in the past, it is amplified by larger external factors, tells Bone Therapeutics CEO Miguel Forte to this news organization. Stocks in biotech or tech are in a more difficult position with increasing interest rates, says Voigt. While predictable patterns for factors like rising interest rates can be priced in, unforeseen circumstances are more difficult, he adds.
Inflation also adds pressure to research activities, says Skillington, adding that the cost of preclinical and clinical studies will likely encounter a knock-on impact in the longer term. Manufacturing or salary discussions are also affected, notes Voigt.
Caution in the near future
In this sense, companies must exercise caution in how they carry on. Rigid financial management and a focus on execution are key, says Voigt, with Foster adding that prudence with expenses is needed. Skillington says Poolbeg uses artificial intelligence to potentially shorten timelines for drug discovery and partners with other companies.
But reliance on specific programs without backups in the pipeline can also be a risk, notes Skillington. Indeed, Bone Therapeutics encountered disappointing results last year with its Phase III JTA-004 trial not meeting primary and additional secondary endpoints. To Forte, this can potentially go beyond the attributed value of the specific asset and strain the company’s performance.
More recently, Bone Therapeutics faced further difficulties, which led to news of restructuring and cost-saving measures. In March, the company announced its focus on the allogeneic cell therapy platform ALLOB and the incoming topline data in 2023, while stopping other developments. C-suite executives including the CEO would also depart. In May 2022, Bone Therapeutics entered into the non-binding term sheet stage of discussions for a reverse merger with private French biopharma Medsenic. The French company’s shareholders would individually contribute 51% of the total outstanding share capital of Medsenic into Bone Therapeutics. For now, Forte says that the company has a clear focus on its objectives, and anticipates ALLOB data in the first half of next year. “That purpose drives us through the current environment. We’re not out of the tunnel, but we know that the vision gives us that light at the end of the tunnel.”