Six top experts on developments in the biotech sector.
By Yilmaz Biter
The biotech sector has faced a number of challenges over the past few years, both for private companies and listed companies. This special editorial reflects on developments in the sector.
The last few years have been a challenging time for the biotech sector, both in Europe and in the United States. Until the early 2020s, capital was abundant - too much capital, admittedly, leading to investments in companies that would not have received funding in a corrected market. The COVID-19 pandemic then caused valuations to fall, making investors nervous and requiring more selective investments to be made. At the end of 2024, a recovery seems to be in sight: not only in the private market, but perhaps also in the public market. Is this a temporary development or a market correction? Several experts reflect on these developments for MandA.be in this editorial special.
A bit more restraint, but not too much
The number of transactions in the biotech sector increased steadily from 2017, peaking in 2021. In these years, the number of transactions increased from 89 to 229. However, there was a decline thereafter due to the COVID-19 pandemic, with 157 and 136 transactions in 2022 and 2023 respectively. The number of transactions in the first half of 2024 was relatively low.
Jan De Kerpel, Co-Head Corporate Finance and Head of Life Sciences & Healthcare at Van Lanschot Kempen, reflects on last year's M&A activity. ‘’It was a moderate year in terms of M&A in general in several industries and certainly in the biotech and pharmaceutical sectors. Some deals were done at the beginning of the year, but they remained limited during the year, especially compared to previous years.’’
Roel Meers, Corporate Finance Partner at Baker McKenzie Brussels and Co-Chair of Baker McKenzie's EMEA healthcare and Life Sciences Sector, agrees with his fellow Belgian Jan De Kerpel. ‘’In recent years, the M&A market has also been characterised by somewhat fewer deals. The larger players (read: Big Pharma) took a conservative stance, preferring to acquire safer and more mature companies in a later clinical phase (so-called Phase 3 companies) with a proven track record and significant market and profit potential, and ideally without debt.’’
Another development that De Kerpel has noticed is that a number of biotech companies are putting themselves up for sale from a position of weakness. ‘’At a certain point, investors are no longer able to keep up with them. If the data generated is not convincing or if a lot of capital is still to be invested, in the end buyers do not give in. In biotech, it is often binary: either there is a lot of interest because it is really good, or it is not good enough and there is no interest at all, even at a low price.''
However, there have been some nice transactions in Europe, according to De Kerpel. ''In Sweden, listed Calliditas Therapeutics AB was acquired by Japan's Asahi Kasei for 1 billion euros. In Switzerland, private biotech Numab Therapeutics sold a subsidiary – with clinical-stage products in immunology – to Johnson & Johnson for an astronomical 1.25 billion dollars. Dutch company Pharming also made a bid for Swedish public company Abliva in December. This shows that there really is a lot of money available, but the target has to be right.’’
''So, it's not that no deals were closed'', Roel Meers stresses. ''But parties took more time to find the right deal that was worthwhile; even if this meant that sometimes more had to be paid in the end for the relevant acquisition. We see a number of factors that are actually boosting M&A activity in the sector, particularly through the so-called patent cliff. Many large pharma companies are facing the expiry of exclusive patent protection of key products, which is putting their sales and profitability at risk. To make up for this, they are more often looking at strategic acquisitions of promising clinical pipelines or technologies."
Generalists versus specialists
Arno de Wilde, Managing Director at EQT Life Sciences, says that during the COVID-19 pandemic there was a booming economy with low interest rates and a lot of money being invested. ''After the pandemic, the market peaked in 2021 and with rising inflation, a bit more uncertainty came into the markets; money became more expensive. We saw investors becoming more cautious and stock prices falling. Stock prices in all industries then underperformed financially, including the biotech sector. What happens in the public markets is then reflected in the private sector. Private investors became more reluctant to make new investments, and in 2022/2023 we saw significantly less funding.''
‘’At some point, with so much money in the market, people will want to invest left and right, and they will stop being so choosy'', De Wilde continues. ''Because of the large market potential, you also saw that 'generalists' started to invest more in biotech. My impression was that many biotech companies were raising large sums of money for very early and risky projects that they would not have raised in a normal market. In relatively tight markets like today, unlike then, the focus is on companies with experienced management, good clinical data and a derisked target. With less money available, the really specialised and experienced investors have continued to make the investments. I consider this a correction in a way. We are now in a healthier situation, although it is currently difficult for early-stage projects to get funding.''
Edward van Wezel, Managing Partner of BioGeneration Ventures, agrees with his fellow investor's observation. ''In 2020 and 2021, a lot of money was indeed invested. If you reflect on it, it may have been a bit too much. If you look at the number of biotech companies on the NASDAQ that are early and relatively young, they are now struggling to raise money. But I think people realise the inherent potential of this industry, although you have to keep thinking about what you invest in. During that period, there was a lot of investment in projects that were very early and there was a high probability of failure. The question then is whether people on the public side on the stock exchange have the patience to wait.''
Younes Sebbarh, Senior Corporate Finance Associate at Baker McKenzie Brussels, has seen how difficult it has been for biotech companies to raise money. ‘’Development stage biotech companies are always looking for fresh money. However, raising money on reasonable terms has remained difficult in recent years. Companies that were able to present strong clinical data and/or were a little further in the clinical process, which increased the success rates of their products or treatments, were still able to find opportunities to raise capital in most cases. Venture capital and private equity funds were also sitting on sufficient money to invest. But it was difficult for many young listed biotech companies. Of course, capital markets are cyclical. So for an optimist, the question is not if the markets will recover, but when. We regularly hear that 2025 will be a good year, at least in the US. Let's see if that's true and if this trend can trickle down to Europe and to Benelux in particular.’’
The new focus of investors
An interesting sub-component that has attracted increasing attention from large pharmaceutical companies in recent years is radiopharmaceuticals: drugs that target specific tumours with radioactive particles. ''Novartis, for example, has been a pioneer in this field with the successful Pluvicto, which generated a billion dollars in sales in just one and a half years. These advances have led to a wave of acquisitions, with three companies being bought at high premiums. RayzeBio, for example, went public in the United States in September for 311 million dollars and was acquired in December for 4 billion dollars’’, says Patrick Krol, founder and portfolio manager of the Aescap Life Sciences investment fund.
This trend is also confirmed by Jan De Kerpel. ‘’At the moment, the most popular therapeutic areas in terms of excellence are metabolic diseases (related to obesity drugs) and radiopharmaceuticals in oncology. These two areas are very popular, given the fantastic results of Novo Nordisk and Eli Lilly on the one hand, and some huge acquisitions of mainly US biotech companies by big pharma in radiopharmaceuticals on the other. A number of companies are also active in this field in Belgium. The Brussels-based spin-off Precirix combines the well-known nanobodies with a radioactive tracer to produce new cancer drugs. More recently, PanTera, a joint venture between IBA (a particle accelerator manufacturer) and SCK CEN (the Belgian nuclear research centre), raised 134 million euros from top life science investors. This deal recently won the M&A Award for Best Venture Capital Deal Life Sciences. PanTera's main objective is the large-scale production of actinium-225. This is a critical element for many radiopharmaceuticals, but there is a severe global shortage.’’
Neurodegenerative diseases of the brain, such as Alzheimer's and Parkinson's, are another area that has been the subject of much research in recent decades and is attracting increasing attention from investors. Earlier in his career, Arno de Wilde's work as a physician and researcher focused on the application of new methods (e.g. brain scans) to identify the cause of cognitive impairment and dementia as early as possible in clinical practice. This is important for early diagnosis and treatment. He was also involved in setting up EQT Life Sciences' Dementia Fund under the guidance of his research mentor, Professor Philip Scheltens. The fund eventually raised 275 million euros. A few months ago, the EQT Dementia Fund made its ninth investment in Atalanta Therapeutics. The US company raised USD 97 million in the Series B round. Atalanta Therapeutics develops RNA therapies for a number of brain diseases that suppress the production of harmful proteins in nerve cells deep in the brain for long periods of time.
Investing in biotech companies developing drugs for neurodegenerative diseases is essential, as there are few effective treatments available. According to a report by the Alzheimer's Association, the number of patients with diseases such as Alzheimer's will only increase. ''Professor Philip Scheltens (Head of the Dementia Fund, ed.) is one of the leading scientists in the field of Alzheimer's and has worked hard throughout his career to diagnose different types of dementia in people at an early stage. When Philip Scheltens started his research many years ago, we thought that memory problems were simply part of old age. Since then, we have discovered that dementia is a major social problem that affects many people and is incredibly costly'', says Arno de Wilde of his former PhD supervisor.
''While all this was going on in the background, his work has helped to ensure that a patient today can get a diagnosis faster and better'', he continues. ''Thanks to research by him and his colleagues, we can now diagnose Alzheimer's disease as early as a blood test. This would have been unimaginable 20 years ago. It has only been possible to diagnose Alzheimer's disease in living people using a brain scan since 2004. Previously, this could only be done after death by looking at the brain under a microscope. This has allowed us to select the right people for drug research and measure whether treatment is going in the right direction. We think now is the right time to invest in neurodegenerative diseases.''
Targeted acquisitions on the stock exchange
Patrick Krol agrees that there are signs of recovery. ‘’I also hear from law firms, for example, that they are bursting with work. That does not necessarily mean that a lot of deals are going through. The processes take a long time, of course, and often enough it still comes down to price. Clinical trials, which drive the biotech industry, came under pressure during the pandemic or were even halted, leading to a fall in share prices. Since September 2022, all trials have resumed and 2023 even saw the second highest number of FDA drug approvals. However, many companies are still licking their wounds after this period of uncertainty. Many boards still have the old valuations in mind. They expect higher valuations when a bid is made, even at a premium of 100 percent or more if the bid is below the historical share price.’’
There is also a wave-like movement in the M&A activity in the biotech sector. This wave has been going on throughout history, he notes. ‘’There are times when the focus is on acquiring a technology platform from which you can develop products. At the moment, the focus is on companies with one or two products that fit well into the existing product portfolio. This means that the overall technology and patent position is not very important at the moment. So it's all about the tangible assets. That's why you're seeing a lot of licensing deals now.’’
This shift to an asset-based approach has implications for entrepreneurship. ‘’Where we used to look at a good idea, a good entrepreneur and a good technology, we now look much more at: is there an interesting asset that we can take from A to B and then sell? This makes it harder for entrepreneurs without access to business angels or family equity to get started. Some venture capital funds, such as Atlas Venture and Flagship Pioneering, are trying to fill this gap by starting companies themselves. They look at where there is a market need, such as gene therapy for people born deaf. They find a team, scour universities for early technologies and license them to create their own companies.’’
Much of the acquisition activity in the biotech sector has been through pre-existing collaborations, says Krol. One example is the acquisition of Fusion Pharmaceuticals, another radiopharmaceutical company, by AstraZeneca for 2 billion dollars. ''They already had a partnership with AstraZeneca. You can see that about 70 per cent of the companies that were acquired already knew the acquiring companies well.''
Younes Sebbarh, who has been involved in several life sciences listings on NASDAQ New York and Euronext Brussels in recent years, notes that macroeconomic and geopolitical factors continued to weigh heavily on international markets and exchanges. ''As a result, it has not been easy for listed biotech companies (or those planning to go public) to access fresh capital. We were able to accompany a number of nice financing rounds and other transactions in the life sciences sector in 2024. There is also renewed talk of possible IPOs, which also shows that the sector has never been stagnant.''
Big, bigger, biggest
In recent years, there has been another development: the financing rounds for biotech companies have become increasingly large. ‘’We see quality companies raising massive amounts of capital. In 2024, there were more financing rounds of more than 100 million euros for private biotech companies than ever before’’, says Jan De Kerpel. In Europe, we can give several examples. Germany's Tubulis raised 128 million euros in March, and Agomab raised another 90 million dollars. The latter not because it had to, but because demand from very high quality investors was at the door. In November, Belgium's ATB Therapeutics raised 54 million euros. In the United States, the investment rounds were many times larger. For example Ottimo Pharma – co-founded by former Seagen CEO David Epstein – raised more than 140 million dollars in December last year.
Sebbarh comments on these large investment rounds. ‘’It is common to see such large investments split into a number of tranches, which in turn are linked to the achievement of certain milestones. Investors are mainly looking for best-in-class product candidates and strong management teams. Once these are found, the momentum builds among investors. Another important aspect is the role of trends in a market. Investors are often attracted to sectors or products that have already proven to be successful. The downside of larger rounds and trends is that it becomes harder for companies that are not in a popular sector, for example, to build momentum. Unfortunately, an investor can only spend his money once.’’
‘’Even for public companies, things can go very fast with good data’’, Jan De Kerpel continues. ‘’Look at Dutch Merus, for example, which raised 460 million dollarsin a few hours on the back of good data, and Danish Zealand Pharma (with Dutch shareholder Van Herk), which is raising 1 billion dollarson the back of new data, including one investor investing more than 200 million dollars. Dutch ProQR is also a good example, having recently raised 75 million dollars based on the results of a competitor's clinical trial that validated ProQR's core technology.’’
Krol sees that the financing rounds of private companies have grown significantly in terms of money, but also in terms of the number of funds that participate in a financing round in parallel. ‘’This is partly because there are only a limited number of really good start-ups and the amount of money raised by funds has doubled in recent years. So there are more parties fighting for the same turf, and then it is better to act together, or from the entrepreneur's perspective: get as much money on board as possible. Second, the road to success in biotech is far from straight. The development of a drug almost always takes longer than planned and involves the necessary hiccups. Investors know this too, which is why they would rather have too much money on the table than too little.’’
European science, American acquisitions
The European biotech sector has grown and changed steadily over the past 30 years. After the biotech sector emerged in the United States in the late 1970s and early 1980s - with the founding of Genentech (1976), Biogen (1978) and Genzyme (1981) as examples - in the late 1980s and early 1990s, the sector also emerged in Europe. In Europe, we know several examples with the creation of Pharming (1988), Cambridge Antibody Technology (1989), IntroGene (1993), U-BiSys (1996), Actelion (1997), Amsterdam Molecular Therapeutics/uniQure (1998) and Genmab (1999). IntroGene and U-BiSys merged into Crucell in 2000. The year before, a joint venture between IntroGene and Tibotec had created Belgium's Galapagos. So the Dutch biotech sector was linked to the Belgian biotech sector early on.
All of these companies have some common denominators, including collaborations with and acquisitions by (larger) American biotech companies and listings on the NASDAQ. Arno de Wilde, Managing Director at EQT Life Sciences, comments on the acquisitions of European biotech companies by American giants. ''If you look at Europe's scientific output and compare it with the United States, it is at least of the same quality and impact. There are many examples of drugs that originated in Europe and then went to the United States for the final development. If you look at where the technology comes from, it is usually Europe. A good example is the RNA technology that underpinned the COVID-19 vaccine.’’
In early January, Galapagos announced a split into Galapagos, which will soon focus exclusively on cell therapy in oncology, and a SpinCo with no assets but 2.45 billion euros in cash. The split is driven by the historic strategic agreement between Galapagos and Gilead, which is no longer relevant. After the sale of Jyseleca and the focus on cell therapy, where Gilead is also active with its Kite Pharma, the situation has completely changed. The original idea of the Galapagos-Gilead deal was that Galapagos would become a kind of innovation engine for Gilead in immunological diseases, where Gilead was less at home, similar to what Genentech was for Roche years ago. That deal had clear agreements where Galapagos could pursue smaller projects independently, but for medium to large projects Gilead had a lot of say. This relationship was no longer relevant and was not easy for either party’’, says Jan De Kerpel.
‘’By splitting up, the former complex relationship disappears. Galapagos will now focus entirely on cell therapy and oncology, leaving behind the historical immunology segment. This creates clarity for the market. This focus makes Galapagos' position clearer, both in relation to the Gilead agreement and in relation to the market. For investors, this means: If you invest in us, you are investing in the next generation of cell therapy. The legacy of the past is now clearly defined. On the other hand, shareholders will get the same stake in SpinCo. Ultimately, a separate management will have to decide which projects to in-license and develop. Since SpinCo will also become a public company, SpinCo shareholders will be able to decide for themselves whether they want to be part of that vision or sell their shares in the market.’’
‘’What you see in America is that they think big right from the start’’, Patrick Krol continues.’’A lot of money is invested right from the start. That's nice for an entrepreneur. On the other hand, if you don't perform, you're immediately replaced. In Europe you can see that we are moving more in the direction of the United States. This is also possible because venture capital funds have grown and are increasingly willing to form coalitions from the outset. In addition, the corporate venture capital funds of large pharmaceutical companies are becoming more active. But they rarely take the lead.’’
Finally, geography is playing an increasingly important role in the biotech sector. China is growing in maturity and innovation, while Saudi Arabia is working towards becoming a biotech hub by 2040. How do these trends affect the European biotech sector from an international perspective? "The emergence of new biotech hubs is positive for the global sector. It also offers opportunities for European companies: think of new markets, potential partnerships and new investors. However, the question is whether European and US investors and companies will dare to invest in less well-known regions. Especially in China, we have seen a trend in recent years to be less dependent on Chinese partners, partly due to the geopolitical situation. Think, for example, of the recent US BIOSECURE Act, which has made cooperation with certain Chinese partners more difficult'', says Roel Meers, who is also a member of Baker McKenzie's Global Healthcare and Life Sciences Sector.
From scientific profit to profitable science
Europe's paradox is that there is much research (university research) and publication in Europe, but there is little action (i.e. commercialisation). This is - unfortunately - still lagging behind the American sector. ''In Europe, we are a bit more conservative and less entrepreneurial and want more data before investing large amounts of money. But this conservatism in Europe makes it harder for early-stage companies to raise money. This starts with scientists who want to spin out a company from an university. In addition, there is still something of a taboo in the Netherlands about collaboration between academia and the pharmaceutical industry. The situation is very different in the United States, where people move between industries on a regular basis, making it easier to develop technology'', says Arno de Wilde. ''This is where there is still a lot to gain for us.''
Edward van Wezel actively invests in early-stage biotech companies and has experienced the various challenges of the valorisation issue up close since BioGeneration Ventures was founded. ''I think at least things are better now. When we started 18 years ago, Technology Transfer Offices (TTO) did not exist. It is now much more embedded in universities and they have got a decent mandate from their boards. People recognise that this aspect is important. It does not have to be only for a spin-out, but also for in-licensing IP, for example.''
‘’After all, it means a lot to a knowledge institution like this'', says Van Wezel, ‘’not only financially, but also for the activities of the institution. It is very nice to see that what you have come up with as a scientist leads to something valuable. The goal is always to show that innovation leads to improvement. As BioGeneration Ventures, we have a broad mandate. Initially, we focused on therapeutic applications and diagnostics in the Netherlands. Now we focus exclusively on therapeutic applications across Europe.’’
BioGeneration Ventures has raised 150 million euros for its fifth fund in 2023. ‘’We also have new investors from the United States’’, says Edward van Wezel. ‘’The American market is mature and sees the opportunities in Europe. When we explain that the output of European scientists is as high as in the United States, but the translation lags behind, they understand. The reason is partly the entrepreneurial culture and partly the availability of capital in the United States. But also: ‘I am a scientist and I am judged by my publications’. There is no incentive for scientists to do anything else.’’
If you compare Europe with the United States, you see a gradation between the countries'', explains De Wilde, ‘’with the sector being more developed in some countries than in others. The United Kingdom, for example, has the Golden Triangle (Oxford, Cambridge and London), with strong universities, lots of (government) funding, investors and biotech/pharma and scientists who are increasingly focused on innovation. In addition, academia there is somewhat more comfortable working with the pharmaceutical industry. The presence of a complete ecosystem with all stakeholders gives the United Kingdom an advantage. The Benelux countries are doing very well, but still lag behind the UK.’’
Accelerating innovation in the Low Countries
Both Belgium and the Netherlands face challenges in the area of valorisation. So both countries have two hands on deck. Both countries also have institutes that face these challenges - in a positive sense. A good example of how this can be improved is the Flemish Institute for Biotechnology (VIB) in Flanders. ‘’They have the resources to actively support scientists and spin out the best ideas’’, says De Wilde. ‘’The VIB has a mandate from the government to fund all research. They also control all spending and patents. It works really well because it has created an engine for the development of new innovative companies. This more centralised approach is very professional’’, says Edward van Wezel.
In addition to the VIB, Younes Sebbarh, who works in Brussels, cites the Interuniversity Micro-Electronics Centre (IMEC) as a leading institute. ‘’Belgium is indeed a place where academic and scientific research is translated into business. Institutes like the VIB and IMEC, together with research cells at universities, are great examples of how to build an ecosystem that drives innovation.’’ Roel Meers, also based in Brussels, comments: ''However, as mentioned above, it is still not easy to attract capital in Europe. The European legislator is trying to facilitate cross-border financing with the recent EU Listing Act, but its impact remains to be seen. Perhaps part of the solution lies in a more integrated European capital market and ecosystem.''
In the Netherlands, innovation is further hampered by slow procedures for drug reimbursement agreements, says Patrick Krol. ‘’Drug prices are determined on the basis of health economic studies, which analyse the added value of a drug compared to existing treatments and ultimately determine the level of reimbursement (price). This is often overlooked. It is often assumed that a company's greed determines the price. Especially in political discussions about high drug prices, where sentiment plays a role, cost savings through innovation are often overlooked.’’
‘’New initiatives have recently been launched in the Netherlands, such as the Biotech Booster programme'', continues Jan De Kerpel. ‘’This should lead to the creation of more start-ups. It is also important that start-ups are also created by entrepreneurs with relevant experience, for example through spin-outs of molecules or technologies from a commercial environment. A good example is Tagworks Therapeutics, which uses a specific chemical technology to develop new drugs from Philips. Another example is Leyden Labs, which wants to use a product that was on the shelf at Janssen Pharma for a new therapy against infectious diseases.’’
Finally, there are groups such as NLC Health Ventures. ‘’They act efficiently as venture builders. They focus mainly on medtech, but more recently also on therapeutics. With Invest-NL, there is finally a national investment programme that can provide long-term funding for Dutch (life sciences) start-ups. It can also play a role when a project becomes too big for the ROMs. Still, the Netherlands can do more to strengthen the ecosystem and lower the threshold. Think about rewarding innovative products with incentive pricing and creating tax structures that encourage risky investments.’’
