Biotech bankruptcies reached a record high in 2023 with over 20 companies announcing insolvency. Financial struggles in a post-COVID-19 economy and rising inflation have adversely impacted the global biotech industry. The financial troubles in the biotech space are likely to prevail in 2024 across both large and small biotech companies. Large pharma companies need to innovate quickly to off-set emerging losses due to patent expiration. The biotech start-up struggle is focused on securing larger financing and getting better returns on minimal investments.  Rising competition, slow financial recovery and product failures are eventually leading to bankruptcy across the global biotech space.

Some of the key reasons that spurred bankruptcy in 2023, and will likely continue to trouble biotech in 2024 are:

1] Legal Battles:

A] Patent Infringements: Patent infringements are a contentious space in the highly competitive biotech innovation landscape. Losing patent disputes can often led to Chapter 11 filings for small emerging start-ups. NanoString Technologies lost a patent infringement dispute with 10x Genomics and filed for Chapter 11 bankruptcy in February 2024. The patent infringement dispute cost NanoString $31 million and the Chapter 11 filing will help stall other ongoing patent litigations. The company intends to explore other strategies and has already pooled $40 million to fund its operations. NanoString will most likely consider buy-out options to re-build in financial standing in the highly competitive ‘omics’ biomarker industry.

B] Financial Disputes: In February 2023 Sorrento Therapeutics filed for chapter 11 bankruptcy due to a legal dispute with Patrick Soon-Shiong, CEO of NantCell. Sorrento alleged that Soon-Shiong bought Sorrento’s generic competitor to Bristol Myers Squibb’s Abraxane to stall Sorrento’s drug development and did not honor the deal. However, the judgement was in favor of NantCell and cost Sorrento over $170 million which subsequently led to the company’s insolvency. The bankruptcy filing came after 3 years after Sorrento rejected a billion-dollar private equity (PE) buy-out deal stating that the PE firm had undervalued them. In hindsight, Sorrento perhaps would have been on stronger financial grounds if it had opted in for that PE deal in 2020.

2] Clinical Trial Failures:

It is a well-known fact that 90% of the drugs in clinical trials fail and it is no surprise that clinical trial failures continue to be a key cause for biotech bankruptcies. Rising competition and the growing pressure to advance candidates to the clinic can often lead to fatal failures in drug development. Such failures can even set back the affected healthcare industry segment by several years.

A] Phase 2 Failure: GLP-1 receptor agonists have created billion-dollar opportunities for pharmaceutical companies over the past year. 9 Meters Biopharma’s GLP-1R agonist candidate, vurolenatide, expected similar success but it failed in phase 2 clinical trials in patients with short bowel syndrome (SBS). The company eventually filed for bankruptcy in 2023.

B] Phase 3 Failure: Athersys, a clinical stage biotech, tried to salvage its MultiStem therapy for ischemic stroke in Phase 3 trials. However, an interim analysis revealed that the company did not meet the sample size needed for meeting the primary end point of the clinical trials. This led to the company’s bankruptcy filing in 2024.

3] Financial Struggles:

Development of advanced treatments, such as cell and gene therapy (CGT), is a very cost-intensive process when compared to small molecule therapies. Securing continued financing for CGT can be very difficult in a rising competitive environment, especially across the Asian landscape. Tessa Therapeutics, Singapore, had secured more than $200 million in funding for advancing its allogeneic and autologous cell therapies. Early phase 2 trials of Tessa’s therapies showed reasonable results in Hodgkin’s lymphoma patients. However, the company cited that it failed to secure additional funding or a strategic buy out option due to difficult market conditions and was eventually dissolved. Additionally, the ‘move-fast-and-break-things’ philosophy never works in a healthcare setting, which was clearly highlighted by the Theranos debacle in 2016. Healthcare start-ups that overhype products before testing it for a long-time in a real-world setting will seldom succeed. Babylon Health, UK, was an AI-enabled health tech unicorn that was valued at $4.2 billion in 2021. By 2023 the company was grappling with financial losses as the company’s investments on growth and scale outpaced product delivery and eventually Babylon filed for bankruptcy.

Some of the other biotech companies that recently filed for bankruptcies include Codiak BioSciences, InVivo Therapeutics, Biocept, Amyris, and Humanigen. The biotech bankruptcies in 2023 and early 2024 have adversely affected several biotech sectors. These segments, unfortunately, will continue to recover from the financial setbacks in 2023. This could lead to fewer job opportunities, more layoffs, and overall pipeline re-prioritization for both small and big biotech participants. Access to funding to accelerate drug discovery and development may be harder for the smaller biotech participants in 2024.

Brighter Future for Biotech in 2024?

Some of the key healthcare sectors that remained unaffected, and in fact thrived, during this period were the GLP-1R agonist and radiopharmaceutical industries. These industry segments are likely to strengthen financially in the next few years. Recent US FDA approvals for game-changing drugs like Zepbound, Leqembi and CASGEVY will also help offset the overall impact of the previous year’s insolvencies by enabling new growth opportunities in the biotech sector. The IPO and M&A activities are also likely to increase in 2024 which will help strengthen global biotech’s financial standing. Explorations of new growth avenues in high-demand sectors such as the human microbiome and the use of AI in pharma will also fuel new developments. The future of biotech 2024 is surely promising, but the global industry will need to be more adaptable to grow consistently in a rapidly evolving healthcare environment.

Vandana Iyer

Vandana Iyer is a Team Leader, Health & Wellness – TechVision at Frost & Sullivan

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