Is the biotech industry poised for recovery in 2024? (2024)

The biotech industry is on the brink of a potential recovery in 2024. The past few years have witnessed the sector struggle with challenges. The initial surge in investments and interest due to COVID-19 vaccine development was followed by a normalization period as demand for these treatments waned, affecting revenues. This period also saw a reduction in FDA approvals due to factors like staffing shortages, further impacting the sector’s momentum. However, by the first quarter of 2023, approvals rebounded to pre-pandemic levels, signaling a possible turnaround. Could 2024 be the year for recovery for the biotech industry?

A challenging period for the biotech industry

The sector faced a complex financing landscape. Venture Capital (VC) investment, critical for emerging biotechs, slowed down as investors became more selective, focusing on higher-quality investments. Despite this, VC fundraising remained robust, indicating sustained interest in the sector. Moreover, the industry had to contend with the looming threat of stricter drug price regulations under the Inflation Reduction Act, posing challenges for securing reimbursem*nt for innovations.

However, despite these challenges, the biotech sector benefited from its inherent financial robustness, innovation-driven growth, and a strong pipeline of assets transitioning to clinical phases. Additionally, the sector saw a wave of shareholder activism and mergers and acquisitions (M&A) activity, with significant transactions.

As we start 2024, the biotech sector appears well-positioned for a recovery. This optimism is bolstered by an improving IPO market. With these factors in play, the biotech sector could see a resurgence, marked by increased investment, cutting-edge innovations, and revitalized market dynamics.

FDA nods in 2023 signal biotech’s path to growth in 2024

The biotech sector is set for a potential recovery in 2024, significantly boosted by a near 50% increase in novel drug approvals by the FDA in 2023. This remarkable upswing, as reported by Reuters, marked a significant departure from the preceding year, with the FDA approving 55 novel therapies. This figure stands in contrast to the 37 approvals in 2022 and aligns more closely with historical averages of around 45 to 50 new drug approvals per year.

The diversity and significance of these approvals underscore a renewed dynamism within the sector. Among the noteworthy FDA nods were high-profile therapies like Eli Lilly’s obesity drug Zepbound and Eisai and Biogen’s Alzheimer’s treatment Leqembi. Furthermore, 2023 saw the FDA greenlighting five gene therapies, including a landmark treatment developed by Vertex Pharmaceuticals and CRISPR Therapeutics, CASGEVY.

This increase in approvals reflects a broader trend of innovation and advancement in the biotech industry. It’s a response not just to the immediate needs of healthcare but also to the evolving scientific understanding of diseases and their targets. These developments have been received positively by industry stakeholders, with expectations of enhanced investment and interest in biotech firms.

The return to peak approval levels in 2023 suggests an overcoming of these operational hurdles and a promising outlook for similar levels of FDA activity in 2024.

IPO market rebound in 2024

There is particular optimism surrounding the Initial Public Offerings (IPO) market in 2024. After a period of decline, analysts at Bernstein forecast a recovery of biotech companies and IPOs in 2024 as high-interest rates begin to ease.

The S&P Biotech ETF (XBI), a key performance indicator, saw a rise of 7.6% in 2023, marking a shift in the market after a significant fall in the preceding year suggesting a biotech recovey in 2024. This positive trend offers a glimmer of hope for the IPO market, which had a subdued performance in 2023, raising only $2 billion across nine IPOs that exceeded $50 million versus more than a hundred IPOs in 2021 for a total exceeding $15 billion. Bernstein analysts express hope for 2024 as the year of resurgence for the IPO market, indicating potential for upward momentum.

Further supporting this outlook, PwC analysts predict that the biotech IPO window will “gradually reopen” in 2024. This reopening is likely to favor companies with strong clinical data, reflecting a selective but optimistic approach by investors toward biotech offerings.

M&A activity in the biotech sector: 2024 outlook

Building on the trends established in 2023, the industry is expected to continue seeing healthy M&A activity. According to PwC, the deal totals could range from $225 billion to $275 billion potentially allowing a biotech recovery in 2024. This robust activity is indicative of the sector’s resilience and adaptability in the face of economic challenges and market fluctuations.

On the U.S. market the Inflation Reduction Act will likely shape business activities in biotech. This legislation, focusing on federal regulation and drug pricing, will impact the strategic decisions of biotech companies. Smaller firms, in particular, may find themselves as acquisition targets due to funding challenges exacerbated by economic pressures like higher interest rates.

An optimistic outlook for biotech in 2024

Despite facing past challenges like investment fluctuations and regulatory hurdles, there’s a sense of positive momentum. The increase in FDA approvals and potential revival in the IPO market indicate a recovering industry that’s getting back on track. M&A activities are expected to play a significant role, reflecting a strategic shift towards innovation and growth.

Yet, the biotech landscape remains complex, with economic pressures and evolving technologies. The industry’s ability to navigate these challenges will be crucial for 2024 to mark a biotech recovery. The future looks promising, but it will require continued adaptability and strategic decision-making.