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The challenging VC funding environment has exacerbated challenges for life sciences startups. VC funding for life sciences startups continued to surge year-on-year from $23.2B in 2019 to $35.8B in 2020 before eventually reaching an all-time high of $49.2B in 2021, per a report published by Cushman & Wakefield. Post the highs of 2021, funding for the sector followed the global pullback trend, falling to $35.8B. The downward trend for the industry is expected to continue throughout this year. Investments within life sciences increased in previous years, driven by pandemic concerns. Additionally, the federal government lowered borrowing rates to avoid a recession, making access to capital cheaper. All the factors proved conducive to life sciences sectors, as investors set aside their risk concerns and increased outlay into the sector. However, the funding environment has changed drastically since then, causing investors to lower their rate of deployment due to rising inflation, high-interest rates, lack of exit opportunities, and fears of an upcoming recession. 
IPOs listings also dried up, taking away another funding source for startups. There were 76 biotech IPOs in 2020 and 89 in 2021. In 2022, there were a meager 16 biotech IPOs. Options for mergers and acquisitions for companies have also decreased as large biotech companies focus on their profitability. Due to the prevailing conditions, many firms are curbing their growth ambitions, cutting down on real estate space, and laying off staff to extend cash runways. Some of the firms are terminating their clinical programs to conserve cash. With cash reserves plunging, inexperienced investors are learning about the high risks associated with the sector. Brookline Capital Market's analyst Kemp Dolliver said, "People who aren't as experienced investing in this sector get this rude awakening that drugs can fail." The lack of cash availability stresses life sciences companies, as they often require significant investments to develop new drugs and therapeutics. Several firms depend on cash to reach their milestones, which, in turn, allows them to secure more funding. With less capital to begin with, firms are finding themselves in sticky situations, forcing them to delay their programs or, in extreme cases, drop them altogether. Israeli company RedHill Biopharma dropped a Phase 3 study in May, citing economic headwinds and "very slow enrollment." The company reduced its R&D capital outlay from $29.5M in 2021 to $7.3M last year. As a result, firms are now pursuing strategic partnerships or acquisitions as many approach the end of their cash runways. Shortly after the downfall of Silicon Valley Bank, investors pulled out of the deal into gene therapy startup Opus Genetics. With the funding swept away, Opus reduced its team size to seven and narrowed its focus to two lead gene therapy programs. One of the lead programs has a clinical trial soon, with the other expected to start in the second half of the year. Investors and founders are bullish on the small and mid-sized biotech and pharma companies' potential to create positive outcomes despite the setbacks. Emerging biopharma companies accounted for two-thirds of the drugs approved by the U.S. Food and Drug Administration department last year. The trend indicates a dire need for small innovative firms within the life sciences space. Per the Iqvia Institute of Human Data Science's report, about two-thirds of the molecules in the industry's R&D pipeline have emerged from emerging biopharma firms. |
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