According to the Ernst&Young 2024 report, the biotechnology sector continues to advance despite recent financing challenges, driven by scientific innovation and efforts by major pharmaceutical companies to improve revenues. The report emphasises that biotechnology companies in the US and Europe could show signs of recovery in financing and deal environments in the second half of the year as interest rates decline.
EY (Ernst&Young), an international consulting, audit, assurance, strategy, corporate finance and tax services firm, has published the Biotechnology Report 2024, which analyses the sector's condition by examining a summary view of factors such as public company revenues, financing, mergers and acquisitions, partnerships and product approvals in the US and Europe. According to the report, the biotechnology sector has operated in a challenging financing environment over the past two years, with many companies forced to restructure their operations. During this period, strategies such as staff reductions, mergers and narrowing of R&D focus have come to the fore. However, some positive signs in the sector appear promising for biotechnology's future.
Revenues declining but long-term expectations offer hope
The post-pandemic decline in revenues remains a significant challenge for the sector. The sector, which grew at an annual rate of 4.8% over the past decade, achieved 9.2% annual growth between 2015-2021 thanks to COVID-19 vaccines and treatments. In 2023, revenue declined alongside falling drug sales. However, long-term projections foresee the sector returning to its former growth trend after the pandemic's effects subside.
In 2023, the US Food and Drug Administration (FDA), through the Center for Drug Evaluation and Research (CDER) and Center for Biologics Evaluation and Research (CBER), approved 80 new biopharmaceutical products. This approval count represents one of the highest levels recorded since 2018. Vaccines and mRNA-based technologies are beginning to give way to next-generation therapeutic areas such as cardiometabolic products and oncology.
Deal activity and innovation revitalise the sector
Deal activity in the biotechnology sector gathered momentum at the beginning of 2024, signalling the presence of pent-up demand in the sector. With the Federal Reserve lowering interest rates and macroeconomic conditions normalising, more deals are expected to occur. As large pharmaceutical companies increase demand for de-risked assets, total financial capacity is estimated to exceed USD 1 trillion. The commercial value of these assets and investor interest are expected to remain high.
Given that nearly one-third of biotechnology companies have cash reserves sufficient for only one year, access to financing remains one of the sector's major challenges. While public offerings remain limited, biotechnology IPO investments nearly doubled in 2023, reaching USD 2.9 billion. This trend is expected to continue in 2024.
Role of large pharmaceutical companies and oncology investments
Large pharmaceutical companies are making significant investments, particularly in oncology and immunology. Oncology stands out as both the largest and fastest-growing area in the biotechnology sector. In 2024, oncology products are estimated to account for 33% of total biopharmaceutical sector growth. This demonstrates that oncology products play a critical role both in clinical trials and in bringing new products to market.
Good management delivers success despite challenging conditions
The report notes that 2023 was a weak year in terms of venture financing. While venture financing remained flat at USD 18.9 billion for the year, this figure fell below the pre-pandemic five-year historical average of USD 47.5 billion. However, companies with strong scientific foundations and experienced management teams are succeeding in attracting investment despite challenging financing conditions.
Corporate partnerships and mergers and acquisitions strategies adopt new approaches to innovation access
Large pharmaceutical companies are turning to corporate partnerships as a lower-cost and less risky method to gain access to innovation. Despite the decline in merger and acquisition (M&A) activity during the COVID-19 period, spending on strategic partnerships has come to the fore. Additionally, large pharmaceutical companies are expected to return to direct acquisitions. As a result, the biotechnology sector is looking at 2024 with cautious optimism; improving financing conditions, continued innovation and increased deal-making capacity by large pharmaceutical companies could accelerate the sector's recovery process.
Av. Ahmet Sağlı, EY Turkey Senior Partner and Health and Life Sciences Sector Leader made the following assessment regarding the report: “The Beyond Borders report data indicates that while some biotechnologies are advancing, others face challenges, but we can say that 2024 will be a transition year and that belief in innovation will be a fundamental element for improvements. Because in the post-pandemic period, the sector has demonstrated strong innovation capacity despite the challenges it faces. With improving financing conditions and strategic investments by large pharmaceutical companies, a promising picture emerges for the sector's future. We believe that this transformation in the healthcare sector will continue to positively impact not only medical innovation but also public health.”
T. Ufuk Eren, EY Turkey Health and Life Sciences Sector Leader provided the following comments on the report: “The report prepared examines the environment necessary for innovation alongside the ways biotechnology companies sustain and grow their operations. The biotechnology sector continues to maintain its potential to develop innovative solutions despite challenging financing conditions and possesses the necessary foundation for cautious optimism to continue. Within the context of significant developments and strategic partnerships in the sector, 2024 could be an opportunity year for growth and transformation. Responding to medical needs in healthcare through innovation and collaboration is a priority step for actors in the sector because the development of innovation capacity alongside the strength of the large pharmaceutical sector and opportunities arising from artificial intelligence will help the biotechnology sector not only survive but also thrive in the medium and long term.”
The full report is available on the EY website.
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