Biotechnology companies have experienced strong enthusiasm in favor of the pandemic, but they are now faced with the scarcity of money: a situation likely to stir up the appetite of the large laboratories which covet them.
These young companies focused on innovation began to interest “non-specialists” when the German BioNTech and the American Moderna made the headlines, at the end of 2020, with their very first vaccines against Covid-19. Proving that investing in a biotech was certainly a risky bet, but one that could pay off big.
The episode of the pandemic “has emphasized technologies that had been more or less denigrated by most of the major players, such as messenger RNA”, explains to AFP Frédéric Thomas, specialist in health issues at the Roland Berger consulting firm.
Taking advantage of this enthusiasm, biotechs have had three good years, with significant fundraising. The young Marseille shooter Imcheck, specializing in immuno-oncology, for example raised almost 100 million euros in June, a record so far in France. At the same time, across the Atlantic, the health start-up National Resilience raised $625 million.
But the frosts of an autumn of inflationary crisis have changed the game: interest rates are rising, investors are more cautious as money becomes more expensive. “It’s more difficult than eighteen months ago. The valuations of biotechs on the stock market have been halved, sometimes more, companies can therefore mechanically raise less money”, notes Cédric Moreau, from the fund of venture capital Sofinnova, specializing in life sciences.
– More and more failures –
However, biotechs have a particular economic model. During the years of research and development that precede the launch of a product, they have nothing to sell and therefore require external financing, obtained in particular by listing on the stock market, or by raising funds through rounds of funding from of investors.
This scarcity of money is therefore perilous for these companies. Cédric Moreau recalls that having financial visibility over a year to self-finance its activities “is almost a luxury today for a biotech”.
“It is not easy to refinance if they have not reached major operational milestones, or if they have not signed a licensing agreement” with a large laboratory, he notes.
“There are more and more failures, at the rate of one almost every week”, abounds Céline Domenget-Morin, in charge of the company department in difficulty at the law firm Goodwin.
“These companies often have no turnover. If no one is there to provide bridging financing while waiting for new fundraising, there is no other option than to look for a buyer, sometimes going through receivership,” she said.
Biotechs also risk having to refocus on their most promising research, and abandon others.
– The “patent cliff” –
The difficulties of some represent opportunities for others, including large laboratories, well endowed with cash to acquire small nuggets.
Especially since they will soon be confronted with “the cliff of patents”, namely the moment when the patents (issued over twenty years) of many of their great drugs are about to expire. This results in lost sales as competitors produce cheaper generics.
“The major laboratories have 300 to 500 billion dollars in cash and they will lose up to 200 billion with the arrival of generics in the coming years. They will therefore have to buy and bail out their portfolios of molecules”, notes Cédric Moreau, by Sofinnova.
“There are going to be acquisitions”, adds Anne-Charlotte Rivière, venture capital specialist for Goodwin: “Not necessarily by large laboratories. Large American biotechs can also position themselves on companies which develop a single product, in a way to diversify their portfolio.
A phenomenon which, according to specialists, should increase in the coming months.