With clinical trials failing at least 90% of the time, here are current trends in the industry’s investment and hiring front.
Clinical drug development is notoriously difficult. It is expensive, takes over a decade, and has an extremely high rate of failure—90% or more. This presents obvious difficulties, since the demand for new drugs and more effective treatments is both consistent and pressing. It is not hyperbole to say that people are literally dying every day, waiting for the medicine they need to make its way through the development pipeline. Thus, there is intense pressure to bring drugs to market, but it is nearly impossible for a small aspiring company to do so without significant external funding. Outside investors are a necessity.
Competition for funding within the space is, understandably, quite fierce. This, combined with the risk, creates an extremely volatile market, with many companies seeking initial and continuing investment. The unsuccessful drug development efforts represent an enormous amount of wasted resources. A disappointing clinical trial—and there are many—can doom a fledgling company. As such, there is significant churn, as new companies are founded around promising treatments or molecules, and others are bought out by larger conglomerates or they simply fail.
But this is not the only issue facing the field, Carl Schoellhammer explains,
“There’s a tremendous amount of revenue and franchises facing near-term loss of exclusivity… you have something like $300 billion plus in revenue that pharma needs to replace, and needs to replace real quick.”
As the founder of Suono Bio and managing director of the DeciBio venture fund for the last two years, he’s no stranger to industry trends.
Venture Capital Funding Trends
The “pandemic highs” have led to a lot of contraction as the market corrects. However, there are some indications that this downturn is slowing, “VC funding is, I mean, it’s back. I think you’re at 2019 or a little above 2019 levels. But it’s going to fewer companies, more late-stage companies, the groups with clinical assets,” says Schoellhammer. If you’re starting out and you’re not well-connected, “You’re going to have a hard time.” The data bears this out, with many fewer companies making IPOs than in the boom years.
Making it clear that he’s not speaking on behalf of his company, Mark (not his real name), an analyst working for Morgan Stanley, points to another trend: falling rates. Companies, especially startups, are often valued off prospective income and future cash flows. “And basically, you’re discounting those future cash flows using sort of a risk-free rate. And that can be benchmarked to an extent by Fed rates. When those Fed rates fall, that’s supportive for equity performance across the group, both for the [mergers and acquisitions] environment, and then also just generally for the funding environment,” he says.
The Rise in Mergers & Acquisitions?
Mark shares Schoellhammer’s concern about revenue: “throughout this decade, we expect about 40% of all major pharmaceutical revenues to lose patent protection. What that means is that there’s a big incentive to conduct [M&A] and pull pipeline projects from one smaller company into a larger.”
Schoellhammer is more blunt: “They’re going to buy companies. So, if you have a focused program with a focused product that has a legitimate chance and an indication to make money when launched, you have a great chance of being bought.” He considers this a positive, saying that the idea that any startup thinks they should be having a full pipeline is “pandemic-induced silliness.” “While biotech is good at taking new science and developing a product, pharma’s good at balancing a massive pipeline of late-stage assets and clinical trials and the logistics of the market,” says Schoellhammer.
The business rationale is obvious from the C-suite perspective—increased revenue and shareholder value—but from the employee vantage point, one can feel like a pawn in a game of chess. Biopharmas often experience a period of stark initial growth followed by an inevitable staff trimming as capital realization sets in. This means layoffs are a virtual guarantee until or unless a major partnership deal is announced or there is marked progress toward commercialization. There is a pivot toward increased outsourcing as the company sharpens its focus on core objectives and aligns with a therapeutic area to advance its programs, build patient advocacy, and foster partnerships with big pharma.
It’s difficult to generalize, as every merger is unique. A media relations employee at a multi-billion-dollar biopharma company said in a non-official capacity that a recent acquisition as “a success story.” But, more critically, they were unable or unwilling to confirm if any of the acquired company’s original employees were still employed there.
Regardless of whether those particular employees made it, the issue is a systemic one within the biotech industry.
Layoffs within the industry are simply inevitable as the excitement of a new company fades into the heavy lifting required to get a drug into the clinic and beyond.
This degree of precarity must be considered a feature, not a bug, as the industry is all but optimized to ensure a steady flow of small companies and assets towards larger companies and capital, with each step of progress de-risking, increasing the value of the program and the appeal of acquisition from big pharma.
Hiring Amidst Uncertainty
From a hiring perspective, this presents a significant opportunity for biopharmas seeking new talent. High-quality and high-skill employees are out there, and while many are risk averse and have preferences they won’t compromise on, there are some that like the frenetic pace and excitement that comes with a preclinical biopharma. They won’t wait for the merger and will seek out jobs in organizations more to their liking.
In terms of high-value employees, Schoellhammer focuses on “folks who have actually made or know how to develop a drug… not just at the bench but have some process dev experience.” Since research is at such a premium, someone who can create that scientific discovery in the lab, explains Schoellhammer, “those are going to be the folks that are of highest value in the market right now.” In many cases, after layoffs, recruiters pursue the remaining employees, taking full advantage of the disruption.
The volatility of scaling, with its cycles of expansion and contraction, is fundamental to the biotech industry and unlikely to change anytime soon. For recruiters, this reality underscores that, while not a guarantee for success, companies that can build resilient talent pipelines, retain key employees, and leverage strategic recruiting practices are far more likely to survive. In an industry where organizations thrive or fail based on the strength of their workforce, those who can access and keep high-caliber, motivated talent will be best equipped to navigate the challenges ahead and secure lasting success.
