Small biotech startups hurting

Biosplice, once the world’s most valuable biotech startup (reaching a $12 billion valuation in 2018), is laying off nearly a quarter of its workforce and has stopped internal development of one of its late-stage medicines, a treatment for hair loss in men, with hopes of licensing that program to another drug company. As VC funding for biotech companies becomes harder to obtain, patients are the real losers.

The news says that pharma is in an “acquisition mode” and looking for deals, but they don’t mention that small market molecule companies have no chance of being bought. Today it’s all part of blockbuster potential, not products that generate just $100 million in sales.

TG Therapeutics, another biotech startup, received a letter from the FDA delaying the indications for the use of its drug and, as a result, laid off over 100 people per comments in Cafe Pharma. In addition, the FDA said late last week that due to the possible increased risk of death in patients taking TG Therapeutics’ cancer drug Ukoniq (umbralisib) in a clinical trial, the agency is now “re-evaluating this risk against the benefits of Ukoniq for its approved uses.”

If an investor bought a share of the SPDR S&P Biotech exchange-traded fund in late July 2018 and sold it in early February 2021, they would have earned a 76.2% return. But had they kept that share until the market closed on Wednesday, the return would have been negative 1.2%. The S&P 500returned 71.1% over the same period.

The pressures facing the biotech sector remain. High on the list are uncertainty around the Biden administration’s approach to pharmaceutical mergers and a glut of newly public biotech firms with very early-stage science that is inherently risky.

The value of a widely followed biotech stock index fund, the IBB, has been down 23% over the last year. But that doesn’t even tell the whole story because it’s dominated by more prominent companies like Moderna, whose stock is benefiting, of course, mightily from its Covid vaccine. Another index fund, the XBI, which tracks smaller and mid-sized biotech companies, has lost almost 43% in the past year.

What does this mean? It means that we’re playing musical chairs for funding, and when the music stops, there won’t be enough places to sit. For patients, it means that small market molecules may never reach the market because they won’t generate enough sales on big pharma’s radar.

The dynamics of “the business” are changing along with the need to generate more sales dollars to please investors.