Some, though certainly not all, chief indicators of biotech business activity are pointed shakily north as we head into a critical Q4. But biotech shows signs of taking another step in the long, slow journey back to a brisk expansion.
After taking some time off to contend with a rare form of cancer, I’m back on the numbers page with DealForma’s Chris Dokomajilar, tracking biotech deals and dollars. At the 30,000-foot level, the industry year-to-date is on track to outpace 2023 in overall deals, biopharma venture totals, PIPEs and follow-ons, as well as IPOs. But it’s going to take a big — though not uncommon — surge in the last three months of the year to top the 2023 totals in licensing upfronts.
And it’s going to take at least one major M&A pact to crest the pace we saw last year, when some splurging triggered one of those spikes in quarterly activity that dot the industry landscape — often in the final chapter of the year.
That kind of mixed-to-modest growth isn’t likely to surprise anyone who pays attention to Endpoints News. The recovery isn’t likely to go quickly, but once established, the industry will still be working with a much larger financial base than we saw in the aftermath of the 2008 financial crisis.
Let’s break it down now chart-by-chart.
Overall deal activity gets an assist from AI
It took the first nine months of this year to deliver a better number on overall deals for biotech than we saw in all of 2023, when we were still watching a fast fade from the Covid-fueled days of 2020. But once you start breaking down the numbers, the details spur some important questions about where we’re seeing the deals hit.
Total M&A deals are running at a faster pace than we saw last year. Licensing deals have a long way to go to make up the gap, though, and we saw the same tidal force at work in academic deals: 366 so far in 2023 vs 558 for all of last year. A late spurt on both scores could even things up, or even pass 2023.
The big gain, however, was in services deals, where we saw big growth over last year with 855 pacts.
Why is that? AI played a big part, says Dokomajilar:
Chris Dokomajilar“AI services made 139 of those 855 service deals in 2024 YTD. In addition to AI, there were classical ‘omics services to bring that total to 212,” he said in an email. “This is outsourced AI as a service, not in-house AI target/drug discovery, which we track under typical R&D licensing partnerships. Last year there were just 34 AI service deals; 62 before that in 2022.
“In addition to AI services, diagnostics also saw 100 service deals in 2024 YTD already passing 2023 full-year numbers.”
Licensing deals are down
The number of licensing deals signed in the Phase 3-and-under category just hit rock bottom for about a 6-year stretch.
A mere 98 deals in Q3 took the total YTD to 346 — vs a healthier 524 for all of 2023. Last year, the dollar total for licensing hit $181 billion, with a little more than $12 billion of that in cash and equity. But 2023 was a laggard as well until the fourth quarter came along to juice the numbers with close to $8 billion in cash and equity.
Deal charts are easily warped by one or two major transactions in a sea of small pacts. And in every year for the past three years, Q4 has been a standout — so we may yet see something bigger come along in the final months of 2024 to jazz things up.
Biopharma venture totals rack up a hefty surge
IPO exits may still be relatively few and far between, but industry venture groups are still finding lots of R&D worth backing.
DealForma counts close to $21 billion injected into biotechs in the Q1-Q3 time frame. With only $2.7 billion needed in Q4 to match all of last year, it seems we’re close to marking the bottom of the trough for the VC world, in terms of investments.
And the bottom post-boom still outmatches the venture money that flowed into biotech before the torrid days of 2020, with $18.8 billion recorded for 2019 and a big downward slope reaching back to the lean times of the 2008 financial crisis, which froze all but a trickle of biotech money.
The mantra in biotech right now is that markets may be tough for drug hunters, but the science has never been better. And a lot of VCs seem to agree with that assessment.
In the biotech world, looking where the rubber hits the road, small molecules outrank everything else on VCs’ radar, followed by antibodies. But in a close third position, AI has been coming up strong and fast. The AI pioneers may still be striving to prove themselves with human data, but for investors, it’s just a matter of time before the technology is widely adopted.
IPOs are in (and out)
Biopharma IPOs have been up and down this year, but it pales in comparison to 2020 and 2021. Don’t expect those days to return anytime soon, but we’re already tracking ahead of last year as biotech works hard to regain some traction in the markets.
So far through Q3 Dokomajilar has tracked 16 biotech IPOs — up from 13 for all of last year’s bleak run. But it’s still been up and down, as a hopeful Q1 was followed by a head-shaking Q2 and then a return to form last quarter. The $3 billion raised so far outstrips last year’s $2.7 billion.
The bankers, who fondly recall the fat payouts to be earned in better times, have been seeing hopeful signs of a comeback. In this market, human data rule. Preclinical is still operating under a cloud, leaving the IPO market in the hands of clinical performers.
One of the big questions now is whether falling interest rates — a macroeconomic gift from the Fed — will drive some renewed hunger by investors looking for something a lot better than safe and secure treasuries. Few investments are riskier than biotech, though. Which is why you’re seeing some savvy financial players selectively tapping biotech.
PIPEs and follow-ons are feeling the chill
The money crowd got off to a strong start this year with a Q1 record on PIPEs and follow-ons that dwarfed what had gone before for at least a couple of years. Then came the fast fade. By Q3, both categories of cash had dwindled to older levels.
Altogether Dealforma tracked 114 PIPE deals in the first nine months of the year, versus 94 for all of last year. With only 17 in Q3, it seems biotech has returned to the much slower pace we’ve seen in the past.
The same is true for follow-ons, with a spike in Q1 followed by steadily diminishing performance. Q3’s 19 follow-ons were the worst we’ve seen since the start of 2022, though those deals raised more money than other, busier, quarters in the past two years.
M&A could really use another push
Along with IPOs, successful acquisition deals embolden investors and encourage fresh growth in biotech. But Q3 wasn’t much help on that score.
Third quarters in general for the past couple of years haven’t been much to boast about. Right now, the big burst of acquisitions tends to land in the fourth quarter — which right now is just a few weeks old.
Q3 this year registered a chart-bottoming 28 deals worth $15.6 billion — meager fare in this world. Year-to-date, 87 M&A deals through the first nine months compares not-so-well with 132 last year, and $71 billion in overall value isn’t yet half of what it was by the end of last year.
In these diminished times, it’s not unusual to see a lot of this year’s M&A fall in the $1 billion to $2 billion arena — small bets by Big Pharma, which finds itself in a buyer’s market. Next, our attention turns to JP Morgan to see if any of the old impetus to make a splash during or right before the meeting is taking shape. If that’s the case, the deal talks should be turning serious now.