With several biotechs becoming household names over the pandemic, 2022 has been a more downbeat year for fundraising. Valuations have fallen on public markets and the anticipated boom of dealmaking failed to materialise.
However, there are a number of factors set to make 2023 a truly exceptional year for biotechs, whether in licensing, fundraising or M&A.
Firstly, listed valuations remain low. There are good targets whose pricing remains suppressed. In Europe the continuing weakness of the Pound and the Euro will make European targets even more attractive for US buyers.
Secondly, many biotechs are beginning to run low on cash, with expensive pipelines to fund. They may soon show more willingness to negotiate with investors.
Thirdly, financial investors are becoming increasingly interested in the sector. Private equity and venture capital funds desperate to spend their piles of cash are expanding their horizons, moving away from healthcare services businesses and into actual biotechs. A number of these have already or are in the process of raising dedicated life sciences funds.
Fourthly, many big pharmaceutical companies are also sat on large amounts of cash. So far they have been judicious in the targets they choose. However, later stage biotechs in need of expertise and funding for expensive trials may become more willing to compromise on pricing for the right partner.
That said, not all dealmaking will be through M&A. There may be greater rewards for those willing to find alternative deal structures. Either way, 2023 promises to be a year to watch.
After spectacular fundraising success during the pandemic followed by a spectacular crash when ideas failed to bear fruit, investors are starting to return to the more promising parts of the listed biotech sector.