2022 Q3 Biopharma Confidence Index Data

Abstract

The “Biopharma Confidence Index” is a forward-looking indicator designed to measure executives’ sentiment and confidence in the biopharma industry and key drivers in the industry. It covers biopharma-specific topics like M&A and deal activity while also factoring in current economic and political factors. Kineticos launched a 15-minute online survey and gathered responses from 92 executive and senior-level respondents of biopharmaceutical companies. After analyzing the survey, confidence in Biopharma going into 2023 is low. Industry leaders are pessimistic about the rate of new IPOs for 2023 and fewer of their in-licensing timelines are on target. Now more than ever, early-stage biotech companies need a trusted partner to help with market opportunity assessments, commercial assessments, primary research, business development & licensing, and portfolio strategies. Cutting spending, turning inward, and trying to wait out the storm can cause further delays. Instead, biotechs need to bring on third parties who have been through industry downturns before and can help them navigate strategically through to the other side.

Introduction

The life science industry is an evolving ecosystem. This ecosystem is defined by the network of interactions between biopharmaceutical companies, service firms, and diagnostics companies as well as the patients, providers, payers, and regulators that influence market dynamics.

Within the ecosystem, the biopharma segments operate in a relative state of conflict. While the path of bringing new products to market is highly regulated through a predictable FDA approval process, the industry also weathers an ongoing series of changes from one decade to the next.

As market dynamics shift, a company’s ability to succeed is dependent upon its CEO’s ability to navigate these changes while keeping the company on course toward commercializing its products. The C-suite—along with the industry overall—would benefit from an ongoing mechanism to measure confidence in the market consistently.

BCI

The “Biopharma Confidence Index” is a forward-looking indicator designed to measure executives’ sentiment and confidence in the biopharma industry and key drivers in the industry. This confidence—or lack thereof—is defined by the degree of optimism within key business indicators.

These indicators include:

• Economy
• Capital Markets
• M&A and Deal Landscape
• Regulatory Landscape
• Political Landscape
• Price Transparency
• Reimbursement & Access
• Digital Health & Technologies
• Artificial Intelligence & Machine Learning
• Innovative Commercial Models
• Value-Based Outcome Health
• Real World Evidence
• Talent & Expertise

Measuring confidence through these indicators over time will demonstrate an ebb and flow of market dynamics and confidence in the future success of companies and growth in the overall market.

Research Specifications

Kineticos launched a 15-minute online survey and gathered responses from 92 executive and senior-level respondents of biopharmaceutical companies. The survey ran from July to August 2022. Most of the respondents were from North America, had clinical-stage assets only, and were focusing on rare diseases, immuno-oncology, or oncology.

Report

The past two years have been difficult for the biotech industry, to say the least. 2021 saw a rise in the median and average late-stage venture capital valuations that rapidly fell in 2022. Compared to 2021, respondents are in- and out-licensing less. At the 2023 JP Morgan Healthcare Conference, several companies Kineticos met with expressed interest in out-licensing of non-core assets to conserve funds for the development of their most valuable programs.  In our survey, 60% of companies expressed an interest in out-licensing, while only 40% were looking to in-license assets.  The difference between in- and out-licensing interest reflects companies’ interest in conserving capital and in finding alternatives to the financial markets.  Given the circumstance, those companies that are in- and out-licensing reported more timelines that were not on target.

Graph 1. Percent of in-licensing and out-licensing timelines on target for Q1 of 2021 and Q3 of 2022

Kineticos Life Sciences has been surveying biopharmaceutical executives in the industry since 2015. The COVID-19 pandemic shook confidence early in the pandemic, was buffered by vaccine authorization, and came back with a vengeance with the Delta variant. Now, 12 months after the 2021 report, the number of respondents with high confidence is at an all-time low. Some argue that too many companies were created in 2020 – 2021 (with excessive valuations) and 2022 sentiment reflects a correction in the marketplace.  Our belief is that these low confidence numbers are due to macroeconomic conditions.  There has been tremendous innovation in the biopharmaceutical industry over the past year, particularly in the cell & gene therapy space, and in treatments for oncology, neurology, and rare diseases.  We expect the biopharmaceutical sector to show a much stronger-than-average rebound as the economy improves reflecting the advancements and value of the industry’s technology.

Graph 2. Percent of biopharma executive respondents with high overall confidence in the next 12 months.

2022 saw the largest percentage year-to-year drop in biotech IPOs since the Great Recession of 2008.  From 96 biotech IPOs in 2021, that number had fallen to just 17 in 2022^1,3.  Respondents to our survey believe the instance of IPOs will remain flat over the next 12 months (the actual value from our survey was a decrease of 6%). While the overall market is a drag on biotech, the healthcare industry has typically not seen the drops reflected in other parts of the market.  In our review of previous market downturns, they typically last 18 months, and given there were signs of a downturn at the beginning of 2022 we expect the biotech market to open up in the second half of 2023.  Biotech companies are currently in a conservative mode weathering the economic storm, but they need to be ready for when the financing window reopens with a sound strategy and fully developed business plan.

Graph 3. The number of IPOs and the amount raised ($ millions) for biotech IPO activity from 2011-2021.

Graph 4. Average percent change of new IPOs over the next 12 months. Data are from April 2020, August 2020, January 2021, and August 2022.

Respondents to our survey believe that M&A will pick up by 18% in the next 12 months. Deal activity was certainly down in the latter half of 2022, so it seems it can only go up.  Further, given low valuations in both public and private biotechs, and challenges for smaller companies attracting follow-on financing, coupled with large pharma being relatively flush with cash and viewing patent cliffs in their current portfolios, we expect to see deal-making pick up dramatically.

The advancements of new modalities of treatments in oncology and recent drug approvals in neurology and neuropsychiatric disease make these indications attractive for M&A and partnership activity. These indications led to deal-making in 2022 (Nature Reviews) and we see strong interest continuing for these indications in 2023².

Graph 5. Average percent change of M&A activity over the next 12 months. Data are from April 2020, August 2020, January 2021, and August 2022.

Figure 1. Breakdown of biopharma dealmaking by therapeutic area in 2022. Source: Nature Reviews²

Conclusion

Now more than ever, early-stage biotech companies need a trusted partner to help with market opportunity assessments, commercial assessments, primary research, business development & licensing, and portfolio strategies. Cutting spending, turning inward, and trying to wait out the storm can cause further delays. Instead, biotechs need to bring on third parties who have been through industry downturns before and can help them navigate strategically through to the other side. Partners can help with pivoting from ABC to XYZ to prepare for when VC valuations rise again. Meanwhile, the competition will be at a disadvantage because they lacked the confidence to make executive decisions during the downturn.

Sources

1. DeFrancesco L, Lähteenmäki R. Public biotech in 2021 — the numbers. Nature Biotechnology. 2022;40(10):1427–1427. doi:10.1038/s41587-022-01496-8
2. Giglio P, Micklus A. Biopharma dealmaking in 2022. Nature Reviews Drug Discovery. 2023 Jan 11 [accessed 2023 Jan 12]. https://www.nature.com/articles/d41573-023-00012-0. doi:10.1038/d41573-023-00012-0
3. Ritter JR. Initial Public Offerings: Biopharma (Biotech and Pharma) IPOs Through 2022. Warrington College of Business University of Florida. 2023 Jan 5.