Three Financial Conversations Biotech Leaders Need to Have in 2024

The financial landscape for biotech companies is on a path to recovery. Explore three essential questions biotech leaders should be asking as they move forward in 2024.

Recently updated with 1H24 data and reflections: Aug. 2, 2024

The biotech industry has long been at the forefront of innovation, revolutionizing health care and delivering breakthrough therapies to patients around the world. Through the first half of 2024, the economic landscape showed signs of returning to a semblance of normalcy, mirroring the pre-COVID era. According to Jeffries Equity Research, funding totals exceeded $41.5 billion in 1H24, marking the best half since 2021. 

For biotech leaders, this shift carries significant implications, particularly in funding and investment. As the pendulum swings back to pre-pandemic speeds, it offers a more stable and optimistic environment. There are, however, areas to watch as we work towards a full recovery, as the initial public offering (IPO) window has yet to reopen. IPOs are a key indicator of this stability, as they provide biotech companies with a crucial avenue for raising capital. Similarly, mergers and acquisitions (M&A) are expected to continue the robust pace of 2023, especially in the private biotech market, fostering an atmosphere of optimism. The risk profile of biotech companies remains sensitive to interest rates, but with the Federal Reserve signaling potential cuts, the sector is poised for growth. 

Notably this year, follow-on offerings, venture capital (VC), and private investment in public equity (PIPEs) have been the strongest sources of funding thus far. Follow-ons are a plurality of funding year-to-date, while VC and PIPE funding has grown steadily; though VCs seem to be doing larger deals via a flat or slightly lower number of deals. 

These trends indicate several things:  

1. Market participants view many public companies as attractive bargains 

2. VCs are continuing to deploy capital at a healthy pace when there is conviction 

3. Large biohparma sees value in mature, but not yet public biotechs 

Additionally, the biotech index (XBI) has already shown promising signs, having bottomed out mid-2023 and steadily building a base since then. The XBI is oscillating around the $100 mark, suggesting a consolidation ahead of a positive trajectory for biotech stocks, providing a potentially favorable environment for both public and private investors. 

The remainder of 2024 is expected to be a year of gradual recovery and sustainable growth for the biotech industry, as funding appears to be coming back in earnest. While the timing of this recovery remains uncertain, trends indicate a measured but steady rise. And though the magnitude of growth may not reach the levels seen in 2020-2021, this year is expected to be substantial, offering a favorable climate for deploying and raising capital. 

Despite the potential for challenges – such as a retest of the XBI low, deterioration in general public market sentiment, a punitive regulatory regime, or a black swan event – the overall outlook for biotechs remains positive. The sector’s sensitivity to interest rates and inflation reduction measures suggests a cautious approach, but the absence of major threats on the horizon bodes well for biotech leaders and their companies.  

As we navigate this year, it is crucial for biotech leaders to stay informed, agile and prepared to capitalize on emerging opportunities in the evolving economic landscape. 

Three Financial Questions Biotech Leaders Should be Asking in 2024 

Biotech leaders must ask themselves tough questions to drive their companies forward in a landscape shaped by economic shifts. These conversations are not just about survival – they’re about thriving in an environment ripe with opportunity. By addressing these pivotal questions, biotech leaders will navigate the complexities of the year ahead and position their companies for success. 

1. Are you using your available capital efficiently? 

In the fiercely competitive landscape, efficient capital utilization is not just a strategy but a necessity for biotech companies. One of the fundamental pillars of this efficiency is a well-thought-out trial design. By carefully planning the trial structure, including the selection of endpoints and the overall methodology, companies reduce the likelihood of costly delays or the need for additional trial arms. This strategic approach not only saves valuable time, but also ensures that the trial generates the high-quality data necessary for regulatory approval and market success. 

Another critical factor in efficient capital utilization is patient recruitment and retention. The implementation of targeted recruitment and patient engagement strategies throughout the trial reduces dropout rates, keeping the trial on track and within budget. Furthermore, maintaining open and transparent communication with patients fosters trust and commitment, enhancing retention rates and overall trial efficiency. 

Effective project management and oversight are also essential for staying on time and budget. Biotech companies must implement robust project management practices to monitor progress, identify potential issues early and make timely adjustments. This proactive approach ensures that resources are allocated efficiently throughout the trial process. 

With fierce competition for available capital and resources, investors expect a clear demonstration of return on investment (ROI) – a factor on prominent display in industry research conducted by the PPD clinical research business of Thermo Fisher Scientific. In a recent survey of more than 150 global drug development leaders, nearly one in three (30%) cited maximizing asset value/ROI as a top challenge facing their organization – the third-highest reported challenge facing drug developers. 

By implementing strategies to maximize capital efficiency, biotech companies not only increase their chances of securing additional investment, but also enhance their attractiveness to initial investors. Demonstrating a commitment to capital efficiency will set biotech companies apart in 2024, positioning them for success. 

2. Are you smartly leveraging technology and scientific insights? 

For biotech leaders, leveraging technology and scientific insights is not just about staying current; it’s about maximizing the potential of every clinical trial.  

In 2024, the use of AI, machine learning and decentralized clinical trials (DCTs) is becoming increasingly prevalent – and, indeed, an expectation. These innovations enable biotech companies to generate data more efficiently and effectively than ever before. By harnessing these technologies, companies streamline processes, reduce costs and ultimately produce higher-quality data, leading to increased trial efficiencies. 

A prime example of leveraging technology and scientific insights is the ability to conduct virtual monitoring. This approach allows for real-time data collection and analysis, enabling biotech companies to identify potential issues early and make informed decisions promptly. Additionally, by utilizing AI and machine learning algorithms, companies can analyze vast amounts of data to identify trends and patterns that may not be apparent through traditional methods. This deeper level of analysis can enable sponsors to execute more targeted and effective interventions, paving the path for improved patient outcomes and trial efficiency. 

Leaning into technology and scientific insights further enables biotech companies to address the challenge of recruiting diverse patient populations. By leveraging digital tools and platforms, sponsors often reach a broader range of patients, including those in underserved communities. Additionally, biomarkers identify patients who are most likely to benefit from a particular treatment, enabling companies to tailor their trials to those most likely to respond positively. 

By leveraging technology and industry advancements, biotech companies will produce higher-quality data, leading to better trial outcomes and a more successful use of their resources. Investors are increasingly looking for companies that are at the forefront of innovation, and by demonstrating a commitment to leveraging the best available technology and scientific insights, biotech companies instill confidence and attract investment. 

3. Could strategic partnerships make you more attractive to investors? 

Strategic partnerships with trusted contract research organizations (CROs) can significantly enhance the appeal of biotech companies to investors. These partnerships offer several key advantages that resonate with VC firms seeking promising opportunities. By aligning with a reputable CRO, biotechs gain access to a wealth of expertise and resources, ensuring that their assets are in capable hands. This assurance reduces executional risk and provides investors with a clear path to understanding how their investment will be used to test hypotheses efficiently. 

Furthermore, partnering with a CRO can bend the cost and time curve of drug trials, a critical factor for investors seeking returns on their capital. A strong CRO enables biotechs to deliver capital efficiency and better ROI by ensuring high-quality work and circumventing quality issues that could jeopardize outcomes.  

Additionally, CROs make sponsors stand out by facilitating good study design and a rigorous development plan, aspects that are sometimes challenging for biotechs to manage independently. By relying on a CRO to strengthen these foundational elements, biotechs enhance their attractiveness to secure VC funding. The credibility and support provided by a partnership with a reputable CRO makes a compelling case for investors, highlighting a biotech company’s commitment to efficient and successful drug development. 

Partner with a CRO that Drives Efficiency and Investor Confidence 

As we look ahead to the remainder of 2024 and beyond, the financial landscape for biotech companies appears poised for a steady recovery. The return to a pre-pandemic speed in funding, the anticipated reopening of the IPO window and stabilized M&A activities all point to a favorable environment for biotech investment. While the magnitude of growth may not reach the levels seen in recent years, the outlook remains positive, with opportunities for sustainable growth and a favorable climate for deploying capital. 

To succeed in 2024, biotech leaders must ensure efficient use of capital, leverage technology and scientific insights, and create strategic partnerships with trusted thought partners. Those that employ these strategies to stay on time and budget, produce high-quality data and demonstrate strong ROI will stand apart from the competition, better positioning their companies for success in the year ahead.  

For over 35 years, PPD Biotech solutions have been at the forefront of providing value to biotech companies and venture capital partners. Our specialized team is adept at working with rapidly growing biotechs and small pharma, offering end-to-end support that is unmatched in quality and reliability. We understand the importance of financial transparency and simplicity, which is why we provide rolling budget forecasts and clear financial breakdowns. Our centralized billing solutions give you, your board and your investors confidence in your spend, allowing you to focus on delivering life-changing therapies. 

Our expertise in trial design, patient recruitment and retention, and project management ensures that your trials are conducted efficiently and cost-effectively. By leveraging technology and scientific insights, we enable high-quality data that demonstrates better ROI to investors. Partnering with the PPD™ clinical research business of Thermo Fisher Scientific means having a trusted thought partner by your side, guiding you through the complexities of drug development and positioning your company for success.