How Small Biotechs Can Make Smart Decisions in a Challenging Market

The biotech sector continues to face headwinds, extending a bear market that began in 2022. The S&P Biotechnology Select Industry Index (XBI index) is down 50% from its peak, IPO activity has slowed down, and cash runways are shrinking. Fundraising has become more selective, with investors demanding clear ROI and milestone-driven funding releases.

Action steps:

• Build lean, milestone-based development plans.
• Prioritize assets with the strongest commercial and clinical potential.
• Focus on capital efficiency — every dollar must deliver measurable value.

AI and real-world data (RWD) are transforming how drugs are developed. From optimizing site selection to streamlining patient recruitment and protocol design, these tools are helping biotechs reduce costs and timelines.

What’s changing:

• The FDA is increasingly supportive of RWD and synthetic control arms.
• AI is moving from discovery to operations — where it can have the biggest impact.

Action step:

• Integrate AI and RWD into clinical development strategies to reduce “white space” and accelerate timelines.

The new US administration has introduced sweeping changes — from pricing reforms to FDA restructuring. While some changes aim to streamline processes, others have introduced uncertainty, especially around regulatory approvals and drug pricing.

What to watch:

• FDA’s reduced headcount and increased reliance on tech.
• The Inflation Reduction Act and Most Favored Nation pricing.
• Global reforms, including UK and EU regulatory shifts.

Action steps:

• Diversify trial locations.
• Leverage international trial sites and regulatory pathways to de-risk development and expand market potential.

With over 24,000 drugs in development globally and patient recruitment rates declining, differentiation is critical. Biotechs must understand not just their own science, but how it stacks up against the competition.

Key insight:

• Competitive intelligence isn’t just for BD — it should inform every stage of development.

Action steps:

• Continuously monitor the landscape and be ready to pivot.
• Develop a robust, data-driven development plan that adapts to market shifts.

In a tight funding environment, partnerships are more than a lifeline — they’re a growth strategy. Large pharma is increasingly engaging in early partnerships as a precursor to M&A, offering biotechs validation, funding, and scale.

Emerging trend:

• Drug discovery partnerships provide new paths to market and can be a prelude to M&A.

Action steps:

• Establish a clear partnership strategy with flexible elements such as optionality.
• Be ready to co-license, co-develop, or out-license based on your long-term goals.
• Maintain regulatory compliance to avoid jeopardizing potential or existing partnerships.

Biotech is becoming more global as investors and partners are casting a wider net for opportunities with strong science and a clear path to value creation. In particular, China and South Korea are emerging as innovation hubs. Meanwhile, traditional markets are reforming to stay competitive.

Opportunity:

• Global events like BIO International, JP Morgan Healthcare, and regional partnering forums are becoming critical venues for cross-border deal-making.

Action step:

• Actively engage with international networks, accelerators, and partnering platforms to identify and connect with the right investors and collaborators.