Following the COVID-19 boom, general uncertainty has had a lasting deleterious impact on biotech assets. The Nasdaq Biotechnology index is down 9% as of late November, underperforming the wider market, and compared to a loss of 10% in 2022. The IPO window for European biotech remains mostly closed, but with exceptions.

Yet there are encouraging signs for the industry and, accordingly, for investors. Big Pharma’s pockets are well filled thanks to recent blockbuster earnings from treatments for diseases like COVID-19, metabolic disorders, cancer, and others. But their pipelines don’t look quite as exciting as they might – so there is both financial scope and motivation for acquisitions and licensing of biotech assets.

Some more of those positive indications: the UK biotech sector raised £563 million in venture capital and public financings in Q3 2023, according to data from Biotech Finance. That’s an increase of 48% from the previous quarter and is the strongest period since the historical highs of 2021. In November, VectorY Therapeutics completed one of the largest private biotech rounds in Europe this year, with a €129m Series A financing.

In the European pharmaceutical industry, there were 83 M&A deals announced in Q3 2023, worth a total of $10.7bn, which is 102% higher than Q3 2022, ­according to GlobalData. The $5.7bn ­acquisition of Abcam by Danaher was the largest disclosed deal.

At recent industry conferences, notably the recent BIO-Europe partnering event, discussions indicated that large pharmaceutical companies now believe that rights to most late-stage assets have been acquired or are over-priced.

As a result, we can expect these companies to start using their large cash reserves on buying in earlier stages, i.e. before clinical proof of concept, to address areas of increasing medical need. Case in point, Boehringer Ingelheim has announced this November the acquisition of privately-held Swiss biotech T3 Pharmaceutical for CHF 450m.

This evidence of Big Pharma shopping for assets has historically encouraged investors, in turn, to speculate on which small biotech companies might be most attractive to acquirers, thus driving increased investment and potentially a new wave of financings in biotech.

This article was originally published in European Biotechnology Magazine 4/2023.