Partnership agreements boost biotech funding in 2023

Translation: Original comment published in Finnish on 3/11/2024 at 7:24 am EET

For biotech funding as a whole, 2023 marked a recovery (+47% vs. 2022) after a dry spell caused by inflation and rising interest rates in recent years. This growth was mainly driven by valuable partnership deals signed in Q4'23. The share of other sources of funding was roughly on a par with the previous year. The IPO market continued to be quiet, both in terms of the number of IPOs and the amount of funding raised. In early 2024, there are positive signs of financial recovery in the US, which may bode well for a continued recovery. Nature Biotechnology publishes financial data for the industry.

Increased value of partnership agreements increased total funding in 2023

Total global biotech funding in 2023 was 414 BNUSD, an increase of 47% year-on-year This growth was driven in particular by an increase in partnership agreements (+78%), which were heavily concentrated in Q4 last year. Most funding sources seem to have stabilized and are roughly at pre-COVID pandemic levels measured in dollars.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology
* Investing in a company already in the investor's portfolio
** Private Investment in Public Equity

The number of IPOs and the funds raised are still at a low level

Globally, the number of biotech IPOs in 2023 was 43, down from a weak comparison year in 2022 (-14%). The year picked up towards the end with 18 IPOs in Q4'23. During the year, there was only one IPO in Europe, 17 in the Americas and 25 in Asia. The funding raised in the IPOs decreased by 7% year-on-year and amounted to 3,980 MUSD.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

The number and value of venture capital investments were also down

The venture capital market in biotechnology can be seen as priming for future IPOs. The dollar value of venture capital investments in 2023 was 23.5 BNUSD (-33% vs 2022). Declines were seen in all main markets. The number of funding rounds decreased proportionally to 583 (2022: 870). The number of funding rounds and the amount of funding raised seems to have stabilized at the 2018-2019 level after the more active Q2’20-Q2’22 period.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

Signs that funding is picking up, though IPOs remain far off

Global biotechnology funding sunk into a deep pit especially in Q1’22-Q3’22. We believe the main reason for the weakness is the overall decline in market risk tolerance, which has especially been reflected in the pricing of loss-making growth companies. In addition, the rise in inflation and interest rates that hit the financial markets in general especially affects companies whose expected cash flows lie far in the future. When examining the last five years, the median funding for one quarter has been around USD 98 billion. In the most recent quarter, Q4'23, the figure was 192 MUSD, which is explained by the number of partnership agreements in the period.

The low IPO activity among biotechnology companies also reflects the strong decline in IPOs experienced on the Nordic stock exchanges after the record year 2021. However, the US has seen an increase in financial activity in early 2024, according to the Financial Times. In our opinion, a general increase in valuation levels could make listing a more interesting option for biotechnology companies that often need equity financing.