Outlook for 2023: Biotechs remain central to novel drug development

Biotechs remain central to novel drug development

In what has been a particularly tumultuous year for the biotech sector, with patient enrolment (resulting from the global pandemic) and funding challenges for small biotechs, there are very few healthcare investors who will look back on 2022 with a positive sentiment. Although we anticipate the current market conditions to persist going into 2023, we are likely to see more M&A activity in the sector, with increased urgency from both biotechs (funding) and large-cap pharma (growth). We continue to view robust innovation as the focal point.

A recap and look forward to a new year

This outlook intends to reconcile the analysis from our previous healthcare themes reports, which we started in July 2022. The sentiment that ran, and continues to run, through our industry reports revolves around several points which, we believe, provide insight into the current market and how it will likely unfold in the new year:

• We believe the majority of innovative therapies will stem from smaller, more agile/entrepreneurial biotechs. For some large cap pharmaceutical companies, up to 80% of launched products were found to originate from third party biotech’s and institutions.
• Large-cap pharma companies have accumulated notable cash balances. Acquisitions and partnerships are likely to pick up, in our view, with large-cap pharma companies seeking to employ its dry powder seeking growth to offset pending patent expirations. Conversely, biotechs will require funding to advance their clinical assets as private and public markets are increasingly limited. The quality of assets and commercial potential will be critical, in our view.
• Disease-altering or new mechanisms of action in attractive indications (market opportunity and pricing) will remain key differentiators, in our view. We have covered several interesting areas to date, including oncology vaccines, women’s health, the central nervous system, cell and gene therapy, acute myeloid leukaemia and drug delivery technologies.
• The pharma industry continues to evolve and based on the macro pressures, we are likely to see different approaches to drive efficiency and expedite drug discovery efforts, with an increasing focus on machine learning technology applications.

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