“Hold on by your fingernails.” The biotech industry braces for another tough year.

Because of this, startups looking to go public are afraid to venture into a volatile and shrinking stock market. Many companies are just trying to survive until the economy improves. Some have recently collapsed, including once-promising Colorado cancer company Clovis Oncology and Cambridge neurological disease startup Faze Medicines.

“Early last year, there were a lot of really good companies that were going public, but their bottom line was ripped out, they went into survival mode,” said Jeffrey Quillen, a partner at Boston law firm Foley Hoag. “Biotech startups from inception to IPO. By the end of 2022, the biotech industry is “barely making ends meet,” he said.

Last week’s JP Morgan Healthcare Conference in San Francisco was the largest biotech business conference of the year, and many of them were represented. Hotel rooms and restaurant booths are transformed into corporate boardrooms for companies to pitch investors or achieve major breakthroughs through deals or acquisitions with big drugmakers. But money that was free flowing a few years ago was obviously more difficult to come by. A sense of foreboding hangs over the lobby, with many predicting a gloomy outlook that could extend into 2023.

“Because we had several years of ‘free money,’ a lot of money that wasn’t worth it,” said Jean-Jacques Bienaime, chief executive of the California-based pharmaceutical company BioMarin, in an interview at an upscale hotel in January 2018. Companies that deserve to be funded get funded.” Conference. “You’ll see companies disappearing, merging and being acquired.”

Biotech leaders have been warning of this phase-out, and small companies across the country, including in Boston, have resorted to laying off workers or abandoning experimental drug programs to buy another year or two.the industry The underlying problem — growing too much, too fast — isn’t unique to Massachusetts, but the pain may be especially pronounced here because the Boston area is widely considered a hub for biotech. But some in the industry say the purge could be healthy in the long run.

Main Street in Kendall Square. The Boston biotech industry has spread from this longtime stronghold to Fenway, the seaport and surrounding suburbs.Jonathan Wiggs/Universal Staff

“If our industry is going to take a hit, Boston is in its sights,” said Hussein Moraj, a Deloitte consultant and head of life sciences in New England. “There will be phasing out, and unfortunately some good science will disappear along with the bad science, but the industry will emerge stronger.”

Despite the downturn, the spigot of funding has not been cut off. A recent report by the Massachusetts Biotechnology Council found that companies headquartered in the state $8.72 billion in venture capital funding was raised in 2022, a 36% decrease from the previous year but still the second-highest year on record.

Many of these companies are based on emerging ideas for treating cancer or immune diseases. Others are creating new or improved forms of gene therapy, or using artificial intelligence to design drugs.

The outlook for IPOs is bleak, however, with just eight biotech companies going public in the state last year, compared with 25 the year before. Larger life sciences companies were also reluctant to make big acquisitions last year, snapping up 26 Massachusetts biotech companies for a total of about $5.9 billion, compared with 34 for nearly $64 billion in 2021.

Many industry leaders hope that fundraising and acquisitions will resume as soon as this summer, but interest in IPOs is expected to take longer to build.Executives pointed to a number of national and global issues that could Changing forecasts, including inflation, rising interest rates, the specter of a recession, the war in Ukraine, tensions in Congress, and drug pricing legislation.

“These are issues that are weighing on the industry,” said Barry Greene, chief executive of Cambridge-based Sage Therapeutics. “It’s very challenging for Wall Street to accept an industry that is full of uncertainty.”

Many companies are trading at a fraction of their peaks, dragging their total stock value below the amount of cash on hand and sending the clock counting down to bankruptcy. Lexington-based Concert Pharmaceuticals, which only has enough money to last through June, was just acquired by Indian drugmaker Sun Pharma.

“There’s been massive overcorrection,” said Andrew Hedding, an investor at Bessemer Venture Partners in Cambridge. “The overall state of the industry remains very strong. When I think about the scientific progress that has been made over the past decade, there is a lot to be excited about.”

“These are the issues affecting the industry,” Barry Greene, chief executive of Cambridge-based Sage Therapeutics, said of the biotech industry. “It’s very challenging for Wall Street to embrace an industry that is full of uncertainty. of.”Angela Weiss/AFP via Getty Images

With the valuations of small biotech companies plunging and big drugmakers flush with cash, investors are skeptical that big pharma will continue its acquisition spree. “For those sitting on cash, this is a great opportunity to close a deal,” said Chris Caruso, a partner at Deloitte who focuses on life sciences M&A. “Some of the beaten-down companies could be targeted.”

While it feels like a buyer’s market, the wave of acquisitions has yet to materialize. Albireo and CinCor, two small biotech companies in Massachusetts, were bought by larger European drugmakers last week, marking a slow start to a usually busy season of biotech business deals. As Cincor CEO Marc de Garidel put it on the Globe, pharmaceutical companies “seem to be very picky about what they want.” Acquired for $1.3 billion.

Partnerships and collaborations between large and small firms are starting to become more common, experts say Because big companies want to invest in new science without taking the financial risk of outright buying companies whose experimental treatments may ultimately fail. Biotech companies that might have wanted to go it alone a few years ago also see the partnership as a lifeline to their dwindling coffers.

“We’re looking for partners where it makes sense,” said Chris Round, president of EMD Serono, the Rockland-based U.S. healthcare company owned by German life sciences giant Merck & Co. “If we get into what looks like a more challenging economic period in the next few years, I think we may end up doing more of the same as everybody else.”

Relatively immune to the funding downturn, leaders of many mid- and large-cap biotechs see the coming shakeout as a natural and necessary part of boom-and-bust cycles. Companies built on a single hypothesis or a handful of experiments that haven’t worked out don’t need to continue, these executives said.

“Pruning them off is a good thing,” says Richard Popes, chief executive of Alkermes, the US-based Waltham-based Irish pharmaceutical company Alkermes. “Companies with good science and technology can raise capital, but the cost of capital will be irritating,” because they may need to sell their shares at absolutely depreciated prices, he added.

Layoffs in the biotech industry began at an accelerated pace last year, and cash-strapped companies are likely to continue laying off workers. But executives in Massachusetts said they were having a hard time filling open positions, so they weren’t worried about job losses in the industry. “The demand is so high, it’s crazy. It’s a war for talent in biopharma,” Green said.

On November 11, a window in Kendall Square was covered with colorful stickers, and a woman’s reflection could be seen. 7th of 2021.

Jessica Rinaldi/Universal Staff

Seth Ettenberg, chief executive of Bluerock Therapeutics, Bayer’s Cambridge-based stem cell subsidiary, said that a few years ago he would extend job offers and return candidates for three to five other job offers. That may not happen again, and job seekers may have to be less picky about who they work for and ask for benefits like working from home, he added.

Biotech-focused venture capitalists say they will continue to invest in new start-ups, but warn that money will not flow freely, especially to a third, fourth or third company trying to solve the same problem or work on a technology similar to it. Fifth startup. competitors.

“As the bar for investment increases, fewer companies get funded. But by definition, the quality of the money that gets funded also increases,” said Jorge Condes, general partner at California-based venture capital firm Andreessen Horowitz. “And, hopefully, they’ll be more focused and stronger.”

Rupert Vessey, president of research and early development at Bristol Myers Squibb, who expects to open a new research base in Cambridge this year, doesn’t expect scientific progress from local startups to slow down. “The Boston-Cambridge ecosystem is so strong and innovative, and the critical mass of company formation skills is so high, I believe the ecosystem will get through this period and still lead the industry.”

That view—that the region’s biotech industry will weather the storm—is echoed by many investors.

“Boston continues to be the biotech capital of the world,” Hedin said. “That’s not going to change anytime soon.”

Ryan Cross can be reached at ryan.cross@globe.com.follow him on twitter @RLCscienceboss.

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