Forget crypto winter. In biotech, it’s been freezing for months


Biotech executives are bracing for more pain as global uncertainty hammers the already beaten-down industry.

The downturn in biotech started long before Russia invaded Ukraine and high inflation became a dinner-table conversation. In the biotech stock slide that accelerated last winter and that’s continued in recent weeks, few companies have been spared. That includes those that went public in 2021 – a record number – amid pandemic-induced euphoria in the sector.

Many of those same firms are now facing the possibility that the situation could deteriorate more. It was enough to create a notable sense of anxiety at the BIO International Convention in San Diego this week, where more than 10,000 executives, scientists and investors gathered.

“Everybody right now is kind of holding their breath to see what’s next,” Joe Panetta, chief executive officer of the trade and lobbying group Biocom California, said in an interview at the conference. The Biotechnology Industry Organization, or BIO, the sector’s national advocacy group, hosted the convention, its first in-person summit in three years.

One executive compared the environment to a hurricane. Biotechnology firms were already facing a Category 3 storm, said Mark Lappe, CEO of Inhibrx Inc., a San Diego-area biotech developing drugs for orphan diseases and cancer. Some companies were still holding up okay when the market began to turn down late last year.

“Then starting in January up to now we went Category 5,” Lappe said in an interview. “It’s just been indiscriminate across everything in development-stage biotech.” Shares of Inhibrx have plunged almost 80% this year. (On Friday, the Nasdaq Biotechnology Index was up 4%, partly on news that drugmaker Merck & Co. might buy the oncology company Seagen Inc. The index is still down 26% for the year so far.)

If the tough market lasts for a year or longer, it will cause fundamental damage to research and drug development, Lappe said. Companies are already narrowing their work to only the most pressing programs, executives at the conference told Bloomberg.

And for companies with bad R&D news, the downturn has poured gasoline on the fire. For example, BridgeBio Pharma Inc. late last year had an experimental therapy for a genetic heart condition fail a crucial trial. The company’s stock is down almost 90% from its February 2021 peak, to about $7.65 as of Friday’s close.

The clinical setback amid the market meltdown created the “ultimate stress test” for BridgeBio and its model of pursuing many diseases at once, said the company’s CEO, Neil Kumar.

The Palo Alto, California-based company raised $110 million through the sale of a priority review voucher to another drug firm and restructured its debt last month, and Kumar was at the conference looking for potential partners for some of its other assets. But investors are intently focused on how much cash companies have and how long that money will last, Kumar said. His firm has made two rounds of job cuts this year, as well as other cost-saving measures.

BridgeBio is not alone. At least 54 biotech companies have made layoffs this year, according to data from BIO. Initial public offerings, follow-on offerings and venture capital for research-stage companies are all way down from last year, according to BIO. The only bright spots in the data are the increase in out-licensing for research-stage assets and acquisitions of companies with approved drugs.

Past slumps
Steve Bryant, the head of global business development at Genmab A/S, compares the current environment to the market wipeouts of 2000 and 2008, with a handful of key differences. There is – for now – enough extra cash in the hands of large drugmakers who can drive deals, as well as with venture firms that raised funds and can continue to invest.

But that doesn’t mean that cash is moving to where it’s needed. Raising money through an IPO feels off the table to most, and almost everyone whom Bloomberg spoke to said that getting cash from private investors was increasingly challenging.

“We’re seeing a lot of companies come forth with assets that they can’t finance,” Bryant said. It’s extremely difficult, he said, especially for smaller companies that may have promising science but haven’t proven the work through more advanced research.

People are hopeful the steep decline in biotech stocks will spark big pharmaceutical firms to start acquiring more companies.

Marianne De Backer, head of business development and licensing at German drugmaker Bayer AG, expects to see deal activity pick up. Last year, the competition was stiff and Bayer had to come up with creative ideas to woo acquirees. Now companies are bringing their own clever proposals to Bayer.

But that doesn’t mean there will be a shopping spree just because things are on sale.

“It’s not like shoes,” she said in an interview.

And nobody knows when the storm will end. “That seems to be anyone’s guess,” said BridgeBio’s Kumar.

© 2022 Bloomberg L.P.

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