Is 2024 the Year for Resurgence in the Biotech Sector?
With a notable shift in industry dynamics, increasing investments, and innovative breakthroughs, it appears we are witnessing signs of a significant resurgence.
Prior to the COVID-19 pandemic, the global biotech sector saw robust growth and drew substantial investment, as investors were captivated by the potential of breakthrough treatments and technological advancements. This positive momentum laid the groundwork for what would become an explosive period for biotech, accelerated by the need for a rapid response to the pandemic.
The spread of COVID marked a pivotal moment for biotech, driving unprecedented focus and funding towards the industry as the race for vaccines and treatments became a global priority. During 2020-21, this urgency led to significant public investment, propelling a surge in biotech valuations and culminating in a flurry of initial public offerings (IPOs). In fact, 2021 was the busiest year for biotech since 2020, with 160 healthcare companies going public and some soaring 200–500% above their opening price. In total, 111 biotechs went public, beating the previous IPO record of 91 in 2020.
However, as the pandemic's acute phase waned and the world edged towards normalcy, investor enthusiasm began to fade, leading to a noticeable slump. The subsequent period was marked by cautious investment, reflecting broader uncertainties and a recalibration of investment returns.
Despite the downturn, recent developments signal optimism that the industry is showing signs of resurgence. The first few months of 2024 have been particularly telling, with an over 20% increase in biotech IPOs compared to the previous period. High-profile listings such as Kyverna Therapeutics Inc. and Metagenomi Inc. have paved the way, collectively raising impressive funds, showcasing a renewed investor confidence not seen since 2021.
The resurgence is further highlighted by the impressive market debuts of companies like ArriVent Biopharma Inc., Alto Neuroscience Inc., and CG Oncology Inc., whose post-IPO performances have underscored the sector's revitalized appeal. Additionally, the biotech ETF $XBI's notable increase since October indicates a broader market recovery and renewed investor interest.
The revival of the biotech IPOs is not merely a reflection of transient market trends but is supported by deeper industry dynamics. According to an EY report, this resurgence is underpinned by three pivotal factors: the biopharma industry still holds near-record levels of M&A firepower; it faces major revenue challenges in the next five years and needs to secure inorganic growth; and economic conditions mean there is a buyer’s market that favours acquiring companies.
These elements collectively suggest a sustained period of growth and opportunity over a temporary rebound. Whilst there must be cautious optimism, there is still plenty of opportunity for biotech success given the promise of cell and gene therapies, RNA technology and CRISPR. That’s not forgetting the advances AI has made since 2021.
