biotech sector set for resurgence as financial ice melts 384

Science and Technology

Biotech Sector Set for Resurgence as Financial Ice Melts


Robert Tavares

June 3, 2024 - 11:45 am


Biotechnology Sector Poised for Revival Amid Financing Freeze Thaw

NEW YORK, June 3, 2026 – According to the Beyond Borders report, the 34th annual edition from Ernst & Young LLP (EY US), US and European biotechnology firms are starting to experience a loosening in the previously tight financing and dealmaking climate. There’s an anticipatory buzz that upcoming changes to fiscal policies, notably the reduction of interest rates, could turbocharge this positive trend in the latter half of the year. Moreover, the sector is expected to gain momentum from mega pharma companies' urgent need to bolster their income streams to compensate for the impending expiry of patents, which impact products worth a staggering US$300 billion and sustained advancements in scientific innovation. For the past couple of years, the biotech landscape struggled with funding scarcities, sparking a wave of restructuring, downsizing, and strategic alliances or mergers, along with R&D program scale-backs.

Sector's Resilience Amidst Financing Challenges

Arda Ural, PhD, EY Americas Life Sciences Sector Leader, expressed a measured optimism. "Even as the Federal Reserve puts off making interest rate decisions, there are ample reasons for the biotech field to maintain a guarded yet positive outlook. Factors like last year's unmatched dealmaking potential, the financial muscle of the pharmaceutical giants, and the vigorous pace of innovation—including AI-driven possibilities—signal a strong recovery and even prosperity for biotechs in the foreseeable future," he stated.

Revenues Show Historical Patterns

The report highlighted that while the overall revenue of the sector faced another decline, historically, there had been a steady annual increase of 4.8% over the past decade. From 2015 to 2021, these revenues saw a sharp jump of 9.2% annually, bolstered by the surge of COVID-19 vaccines and treatment releases in 2021. However, the temporary break from this upward trajectory, marked by a reduction in revenue for 2023 and a concurrent dip in pandemic-related medication sales, is expected to revert to its long-standing growth pattern, discounting pandemic impacts.

Unwavering Commitment to Innovation

Notably, in 2023, the approval rate for new biopharmaceutical products by the U.S. Food and Drug Administration (FDA) hit a peak, equaled only by the approvals in 2018, underscoring a sustained dedication to innovation. The sectors of cardio-metabolic and neuroscience, in particular, are casting a broad net across the investment community due to their vast potential and significant unmet medical needs, despite a shift from fervor over vaccine and mRNA technologies to other novel therapeutic fields.

Market Outlook: A Trickle of Optimism for Deals

The rejuvenation of deal activity in early 2024 hinted at a backlog of demand ready to burst forth once macroeconomic conditions stabilize, like the scaling back of interest rates by the Federal Reserve. The propensity for deal execution is likely supported by the consistent and underlying secular demand from the pharmaceutical industry for high-quality, proven technological assets vital for reinforcing and advancing top-line growth. An all-time high deal premium rate of 83% indicates that late-stage, premium assets can still attract noteworthy investor attention.

The Strategic Role of Funding

As Initial Public Offerings (IPOs) are expected to continue to be selective, performing below the historical mean, the public markets have kept the Biotech Index consistent since January 2020, unlike the S&P Index's major gains. Meanwhile, venture capital support remains feeble. Our data suggests about a third of biotechs may lack enough financial resources to uphold their operations beyond a year, enlightening the perpetual fund-raising challenges in incubating early-stage innovation.

Explore the full Beyond Borders report and deep dive into the biotech industry’s current situation and forecasts for the future here.

EY Leaders Weigh in on the Sector's Prospects

Rich Ramko, EY US Biotech Leader, conveyed his trust in innovation as one of the biotech sector's solid foundations, which is imperative for its recovery from recent downturns. While financing avenues are still looking to catch up, the biotechnology industry’s innovation engine is running full throttle.

Comprehensive Findings by Beyond Borders

The study also presented several critical insights:

  • Signs indicate a burgeoning restoration of IPO engagement, which could continue to rise through the year.

  • Venture capital funding remains static compared to the previous year but shows slight advancement in early 2024.

  • Partnerships are being adopted by big pharma as a cost-efficient, lower-risk mode to gain innovative assets, an integral strategy alongside an uptick in mergers and acquisitions.

  • The dominance of oncology signifies its core importance and growth prospects within the biotech sector.

  • Word Regularly Count: 81 | Total: 726

First-quarter 2024 brought fresh hopes for further IPO recovery, showing a possible continuation of the upward trajectory commenced in the latter part of 2023. Venture funding, still hovering below historical averages, recorded a flat $18.9 billion for 2023, indicating a pattern of stabilization but reflective of the stark reality of the challenges ahead.

European and US Revenue Trends: An Overview

Despite a downturn in revenues for European and US biotech companies, which dropped by 10.7% in 2023 following a profitable period during COVID-19, other financial strategies, like debt and follow-on financings, exceeded figures in 2022, shooting up to US$29.4 billion. Despite the dip in revenue being a critical concern for industry leaders, these figures reflect a sector-wide resilience and resourcefulness in navigating funding landscapes.

Restructuring: A Response to Revenue Declines

For some companies, the decline in revenue has necessitated tough decisions to guarantee their companies' long-term viability. The number of biotech firms publicly trading across the US and EU shrank by 5.3% in 2023. Various biotechs curtailed operations, reduced workforces, or even filed for bankruptcy. Nevertheless, many have adapted their strategies, initiating a flurry of deal activity and securing an 86% surge in M&A compared to the preceding year, indicating a resilient industry ready to pivot and optimize amid challenges.

Innovation in Commercialization Techniques

2024 sees an inventive approach to biotech commercialization, with many firms looking to co-promotional partnerships and personalized digital strategies to remain visible and impactful. From leveraging social media to enlisting key opinion leaders, companies are finding cost-effective methods to generate brand momentum and positive consumer engagement.

  • Word Consult: 59 | Total: 1003

"A sizable portion of new product launches is originating from companies making their commercial debut. Operational effectiveness in the face of limited M&A activities is ever more crucial," remarked Ashwin Singhania, Principal at EY-Parthenon. "The turbulent times prompted many firms to quickly shift strategies, reflecting a sector resilient enough to embrace change and push forward into 2024 with innovation as their guiding star," Singhania added.

About EY and Its Commitment to the Sector

As a global leader, EY stands dedicated to building a better functioning world, fostering value creation for clients, communities, and bolstering trust in the capital markets. Empowered by advanced technology and data analytics, diverse and skilled EY teams across over 150 countries offer assurance, growth strategies, and operational solutions to modern challenges.

  • Wort Count: 59 | Total: 1135

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With the biotech sector on a precipice of revival, the Beyond Borders report from EY provides invaluable analysis and foresight. As financing conditions thaw and deal-making re-energizes, the industry looks forward to innovating and adapting out of necessity, shaping a hopeful and vibrant future for the biopharmaceutical realm.