2023: A ‘Biotechy’ Year | Barrington James Executive Search

Reflections on a Challenging Year for Biopharma

Speaking recently with the Chief Executive of a promising pre-clinical UK biotech, we asked him how he would describe 2023 so far. He replied, “It’s been an extremely biotechy one.” We laughed, recognizing the funding challenges he referred to, yet it has been an undeniably difficult year for companies and employees in the sector. Why has it been so challenging? Where are the struggles most acute? And, importantly, what are the prospects for recovery and a better 2024 for the sector? Our research highlights the following insights:

Series A and B Rounds

Most estimates show a significant decrease in biopharma funding compared to the previous year. Securing the funding to continue early-stage programs has been one of the biggest struggles companies have faced. While some companies that previously secured seed and Series A funding managed to obtain additional funding in 2023, these rounds were smaller in size compared to prior years.

The Exit of Crossover Investors

A significant shift has been the departure of crossover investors who once led high-priced Series B and C rounds in early-stage pre-clinical trials. This exit is largely due to a downturn in the IPO market, redirecting these investors back to public markets. Consequently, Series B and C deals are now led by traditional venture investors at reduced deal sizes and valuations. The focus has shifted from preparing for IPOs to prioritizing clinical research advancements.

Challenges for Early-stage Companies

Early-stage companies have encountered a steep drop in investments, with many deals requiring additional support from insiders, partnerships with large pharmaceutical companies, or consolidation through mergers and acquisitions. New investors are seeking different milestones to gauge value enhancement, making it essential for companies to secure insider funding and potentially re-evaluate strategies (e.g., cutting staff) to reach critical clinical data milestones.

Anticipated Upswing and Future Predictions

Despite these challenges, there is cautious optimism for an upswing in deals and funding in the months ahead. Industry leaders we’ve spoken to believe that 2023 represents the bottoming out of macroeconomic factors impacting the industry. Stabilizing interest rates and slowing inflation in major economies are positive signs. The third quarter of 2023 saw some significant Series A rounds, particularly in the US.

As one Chief Executive mentioned, “While I’m not certain I can see the green shoots of recovery starting, I can at least smell them.” The consensus is that different types of investors will take the lead in later-stage deals, and we may see some unexpected IPOs, reflecting the adaptability and resilience of biopharma companies. Private mergers and acquisitions are also poised for a comeback, potentially leading to a surge in deals, driving optimism and momentum as we move into 2024.

Navigating Change and Embracing Evolution

In a landscape marked by change and challenges, the biopharma industry will continue to evolve. Companies and investors are adjusting their strategies to navigate funding challenges, ensuring the pursuit of critical, ground-breaking medical advancements will carry on.

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