The biotech sector was once an investor’s darling, but times have changed. Funding rounds are taking forever, lead investors are pulling out, and startups are revising their valuations.
Data shows the lowest deal count in years, despite a resurgence in large-scale funding, with 68 startups securing $100 million or more in the first eight months of 2024.
Even in China, where investment was once abundant, biotech companies are struggling to raise. Speaking at the BIO CEO & Investor Conference, Xiaoyang Qiu, CEO of Regor Therapeutics, said the company had to sell off rights to key assets while seeking resources in the U.S.
However, Trump’s ‘America First’ policy is making it harder to form new U.S. biotech startups using assets from China.
Qiu pointed out that Regor — whose obesity drug RGT-075 demonstrated a 5% weight loss at 12 weeks in Phase 2a — has a clinical development team based in the U.S. “Most Chinese companies don’t have that capability,” he said.
The perfect storm
In Europe, clinical trial costs have surged due to factors such as the war in Ukraine, where many EU startups have been conducting their trials. This has created a perfect storm alongside broader financial constraints, said Benjamin Hadida, CEO and co-founder of Exeliom Biosciences based in Dijon, France.
The company raised $26 million, but then the war disrupted trials in certain areas, including IBS. To manage the rising costs, Exeliom focused on clinical collaborations through Investigator-Sponsored Studies (ISS).
“Our approach goes beyond simply providing the drug — we support sponsors in key areas where they need assistance,” Hadida said.
Post-COVID symptoms
“During the COVID-19 pandemic, many biotech companies went gung-ho into mRNA vaccines,” said Gadareth Higgs, founder of Higgs Insights. “Some big players made out like bandits, with Pfizer being one of the greatest beneficiaries.”
However, as the threat of COVID-19 waned, and the economic aftershocks became more pronounced, biotech investors tempered their appetite for risk. Many generalist investors have pulled out, causing a sharp decline in IPOs.
As big pharma shifts its focus to late-stage assets, VCs and pharmaceutical companies pursue large financing rounds with quick exits and high returns.
“This shift has hurt innovation, especially outside of AI, leading to a decline in early-stage funding and raising concerns about the long-term health of the innovation ecosystem,” Hadida said.
Raising in America
Amid the current global biotech funding dip, the U.S. market remains the most dynamic and well-capitalized.
“International founders are betting on the U.S. as the biggest, fastest, and most popular horse in the race,” said Higgs. But America has its own challenges.
The post-pandemic rise in interest rates has reduced the appeal of high-risk sectors like biotech. Uncertainty, inflation, and the potential impact of tariffs are affecting the market. Non-dilutive funding is being reduced, with anything government-related facing cuts by DOGE.
Still, experts believe American investors have plenty of capital waiting to be deployed, and it’s only a matter of time before they open their pockets.
“Every industry has its ups and downs,” Higgs said. “For startups, it’s about how to operate under the current variables and position yourself for the next six to twelve months.”
International founders are now exploring all available funding sources, including grants, venture capital, and potential IPO opportunities.
“In today’s challenging environment, survival depends on securing the necessary capital to reach the next major inflection point,” said Hadida.
