It was a year of extremes in the biotech industry: While a few large companies raise record sums, the rest of the industry struggles to survive. And this is exactly where the problem lies.
A Billion-Dollar Rain - But Only for the Big Ones
The headlines in 2024 belonged to the giants: Xaira, a San Francisco-based company specializing in AI-driven drug research, raised 1 billion dollars in April – a record for a biotech start-up. Metsera, a New York-based company focused on weight management, secured over 500 million dollars in funding in just seven months.
The big players in the industry benefit from a small, elite group of powerful investors. A prime example: Flagship Pioneering, known as the investor behind Moderna, secured an impressive $3.6 billion in July. In October, the Dutch firm Forbion followed with $2.2 billion. But while these heavyweights dominate the headlines, the reality looks bleak for smaller players.
Shattered Dreams in the Shadow of Rising Interest Rates
The pandemic-driven boom that made risky long-term bets attractive is history. Rising interest rates have made investors more cautious and shaken up the industry significantly. Even a 40 percent surge in the S&P Biotechnology Select Industry Index since October 2023 is not enough: It is still 50 percent below its peak of 2021.
The numbers speak for themselves. In the first half of 2024, over a quarter of U.S. biotech companies that raised at least 15 million dollars reported so-called "flat or down rounds" – financing rounds where the valuation either stagnates or decreases.
Why Big Pharma Is More Selective Than Ever
Even the pharmaceutical giants with cash-rich coffers are looking more closely. Acquisitions have become rarer because buyers demand proof of efficacy and clinical differentiation of drugs. One exception: Danish Genmab acquired the US-Chinese cancer specialist ProfoundBio for $1.8 billion – one of the few major acquisitions of the year.
However, this selective approach prolongs the time companies rely on external financing. Investors have to raise larger amounts to keep their stakes afloat. But this has consequences: The focus on later financing rounds deprives start-ups and young companies of important resources.
Europe – A Continent of Untapped Opportunities
The problem is particularly evident in Europe: Outstanding scientific achievements meet a chronic lack of capital. Legal and cultural barriers continue to hinder the cross-border flow of funds. The result? European companies are valued on average 40 percent lower than their American competitors.
But this shortfall is often compensated for during IPOs or acquisitions – much to the delight of venture capitalists. Sander Slootweg, Managing Partner of Forbion, calls this "a profit lever that is often overlooked.
