ICON Biotech

Brandon Early

As we launch into the New Year and converge with all our industry peers at the JP Morgan conference, this is a key point for an industry temperature check. And by all accounts, the vital signs are healthy, and the tone is optimistic.This year’s conference seemed to arrive with more excitement, amid a flutter of deal activity that seemed less pronounced the year before, signalling stability and growth after a few years of turbulence.

We discovered similar sentiments in our recent research collaboration with Citeline, wherein we surveyed 133 decision-making individuals across small, mid-size and large pharma/biotech or venture capital organisations to get a clearer picture of biotech companies’ responses to the changing shape of the market. Despite recent challenges across the funding market, development landscape and macro-level concerns, the biotech market is bouncing back. Investment in the market is growing, with increased funding activity, a healthy level of capital on the table and rising trends in R&D spend. This spend drives biotech asset development forward and we see positive strategic trends that will help manage and optimise this spend to set biotech companies up for success in 2024.

Growing season

Every market correction serves as a pruning season, and now the market is ready to ‘send out new shoots’ fed with increasing R&D spend. The biotech respondents in our survey were embracing this growth, the majority (60 percent) were planning to increase their R&D spend and only 2 percent planned to reduce. This spend is coupled with a sense of confidence, where the majority of respondents were at least somewhat confident in meeting their next investment milestones (93 percent) and their overall product success (87 percent).

After the IPO window was nearly shut during the correction, it has cracked open once again for well-prepared, later stage companies. There were 19 IPOs in 2023, mostly phase 2 or later, and depending on how these and the more recent IPOs are priced, they will set the tone for other biotech companies as they develop funding and exit strategies.

Assimilating emerging biotech

During the high-water mark for the biotech funding market, there was a generous amount of newly created biotech organisations ready to take advantage of the favourable conditions. Those companies are still being processed after the shift in the market, and as dealmaking rates slowed, they are more actively pursuing the funds they need. The perception persists among nascent companies that funding is more difficult to acquire, especially as VCs kept their portfolios flush with more insider rounds, though funding is available for the right science.

From the pharmaceutical company side, last year’s ‘watchful waiting’ is giving way to more M&A activity. M&A ticks up after market corrections and pharma has banked significant funds to replenish their R&D pipelines. Those funds were already being deployed in 2023, and the majority of our survey respondents cited their funding was from large pharma (48 percent) compared to VCs (32 percent). M&A will continue as a major market driver this year and as momentum continues from 2023’s 29 deals (with over half raking in over $1bn each per SVB’s analysis), we expect more activity in CNS, obesity, cardiovascular and immunology.

Doing more with less

Biotech companies are used to doing a lot with a little, resourcefully leveraging their lean structures and stretching their cash runways to get to the next inflection point. However, when balancing timelines, quality and data with cost management, compromises are made. Certain things get set aside due to lack of in-house capacity, expertise or resources. Moving into 2024, we expect biotech companies to focus on doing even more with less as clinical development costs climb by optimising R&D spend with more efficient and productive strategies.

Earlier long-term planning will lay the groundwork for higher quality data generation which is key to clinical development and exit strategies. 

CROs are a valuable resource for biotech companies in this regard: partnering with them at earlier stages will imbue the program with continuity, help close gaps in capacity and expertise, and provide expert gap analyses to fully flesh out adaptive strategies. This ranges from putative clinical development plansto reimbursable Target Product Profiles and the commercial potential of target positioning within an indication.

Biotech companies are choosing larger CROs at increasing rates over an ecosystem of smaller, niche providers: 41 percent of respondents prefer to partner with large global CROs or their dedicated biotech units that provide end-to-end offerings. These outsourcing models are more streamlined and comprehensive than ad hoc arrangements or an ecosystem of niche providers, and the depth of services and expertise will help build value into programs.

Quality in quantity

Of course, the market is still healthy with plenty of capital available, but we expect biotech companies will prepare more thoroughly for their potential exit strategies. This is especially true for companies battling cash burn across multiple ongoing clinical trials. To note, 33 percent of respondents have 2-3 trials ongoing while 51 percent have 4+ trials. Survey respondents cited complexity of clinical development as the greatest operational risk, which is compounded by the number of concurrent trials companies are running, especially for phase 2 and 3.

Investors are more discerning, and we have seen more time dedicated for due diligence efforts. Biotech companies preparing for exits or investment will need to increasingly prioritise higher quality data and evidence generation to be prepared. And it’s not only investors that are growing more scrutinous – regulatory scrutiny and the intricacy of the ever-evolving global regulatory landscape pose risks to programs at various points. Biotech companies will need to prioritise registration-level data generation to mitigate costly, time consuming and potentially fatal risks to their program.

The increasing use of real-world and claims data, along with electronic health records and social determinants of health data will illuminate patient pathways and unlock key insights into ultimate positioning. This understanding positioning provides a lens to reimbursement potential and drug utility and allows biotech to build a clear, data-responsive approach that investors and pharma look for in portfolio companies.

Closing thoughts to open the year

High impact, meaningful medicine will continue to secure funding. The capital is out there, with $19bn in closed funds in the US last year and large pharma’s stockpile now being deployed, but data quality and optimised development will be key to securing upfront funds and ensuring successful exit strategies. As biotech companies move into the new year characterised with ‘green shoots’, their optimism makes way for confidence backed by enhanced strategies and agile partners to optimise their R&D budgets and carry them more efficiently through their next milestone.

While the funding adjustment has reprioritised efficiency, it also showcases biotech companies’ resourcefulness and resilience in the face of adversity. We anticipate the trend toward more strategic partnerships between biotech organisations and their investors and CROs will continue to serve as pivotal resource to underpin program-wide optimisations. This will support the growing imperative for clearer, better data earlier in development to differentiate biotech’s science and meet the increasing diligence and regulatory requirements while driving their R&D programs forward.