Sunny side up – Biotech funding – 2025 & Beyond

The past couple of years have been challenging for many biotech/startup companies, particularly for raising funds. Key obstacles include high interest rates; uncertainty in the capital markets after the 2020 and 2021 funding boom; and investors’ lower risk tolerance. At the same time, large biopharma companies were less willing to pursue early-stage opportunities, and favored de-risked, late-stage assets or companies – even if that meant paying top dollar.

Thanks to the Fed’s interest rate cut in September, and another anticipated cut in Q4, analysts anticipate that biopharma’s access to capital will improve. Of course, nothing is certain in the current geopolitical and economic landscape, but we do see encouraging signs for biotech investment. As one recent example, Bain Capital Life Sciences and ARCH Venture Partners each closed separate $3B funds.

As companies prepare for more affordable access to capital, and anticipate the clinical development, commercialization and BD&L initiatives it will fund, management teams should prepare now to optimize their pipeline’s potential and align on some of the critical success factors that will guide investment decisions in this new market environment.

In preparation for advancing trials and deals that had been put on hold, it will be important to consider four key questions:

1. When to partner

What are the trade-offs to consider in advancing an asset through clinical development and partnering after proof of concept, versus partnering the asset when only pre-clinical or early signal data is available? Biotech executives need to weigh several factors:

• The biotech company’s cash runway (and the Board’s sense of urgency in obtaining an upfront payment)
• Confidence level in the science and the biotech company’s ability to advance the asset through proof of concept
• Risk tolerance for partnering now at a lower price vs. investing in a trial that may or may not produce favorable data

To make this decision, it’s important to weigh strategic considerations such as:

• How would a partnering deal align with the corporate strategy?
• Within the portfolio, is there a program that isn’t fully aligned with the company strategy? Would it have better probability of success with a partner, rather than developed internally?

Two examples illustrate the risk-premium balance that companies have weighed:

• Higher Risk / Moderate Upside / Lower Premium
  • Incyte acquired Escient for two early-stage programs (novel G-protein-coupled receptor targeted therapies) with significant potential in multiple systemic immune & neuro immune conditions for a relative “bargain” of $750M
• Lower Risk / Higher Upside / Higher Premium
  • Genmab paid $1.8B for “de-risked” program – ProfoundBio’s Rina-S (Rinatabart sesutecan) and other next-generation ADCs

2. Who to partner with

Whether multiple suitors are lining up for a highly sought-after program – or it’s a much narrower selection of potential partners – the buy-side and sell-side each have their own complementary considerations.

While each company’s deliberations and strategic considerations often aren’t publicly disclosed, we can look at any number of deals and hypothesize how the deal came out – and what each partner saw in the other.

Earlier this year, Biogen acquired HI-Bio to add a nephrology franchise to their drug development efforts in a deal valued up to $1.75B.

Biogen’s Head of Development commented: “We believe Felzartamab has demonstrated impact on key biomarkers and clinical endpoints in three renal diseases with serious unmet needs, and is a strategic addition to the Biogen portfolio as we continue to augment our pipeline and build on our expertise in immunology.”

In this case, an asset with compelling science and an acceptable risk profile fit a portfolio gap that Biogen sought to fill.

3. What opportunities to prioritize

No matter how strong the fundraising environment becomes, budgets will be finite, and companies will need to prioritize which trials to initiate and deals to pursue.

As companies consider the optimal portfolio composition that will deliver on strategic and financial goals within a specified budget, there are key questions to address at both the asset and portfolio level:

4. How to balance risk vs. potential payoff

As companies think about which internal development or BD&L opportunities to prioritize, portfolio strategy and BD teams will need to consider: should we focus on core areas or expertise (e.g., modalities, TA’s, platforms) or expand into adjacencies?

A few questions can help guide this decision:

• Should we discover or acquire new targets within our core focus area? What are the actionable opportunities, based on the emerging science?
• Should we deepen our experience in a core focus area with more logistically complex or sophisticated technologies? What capabilities and expertise would we need in order to succeed?
• Should we diversify with a modality or platform outside our current focus area? Should we prioritize established or emerging targets?

Putnam supports a wide array of clinical development and BD&L strategy decisions among biotech, large pharma and investment firms. As our clients prepare to invest in the internal programs or external assets/platforms that will deliver on their strategic and financial goals, we help them make well-informed decisions that have a significant impact on their corporate strategy and portfolio value. Given how quickly due diligence happens, it is critical for biopharma companies to be prepared and have clarity on the questions we’ve discussed.

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