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The biotech industry in particular will experience high levels of uncertainty and changes in 2025. Emerging biotech companies are facing significant challenges due to new technologies, intense global competition, and changes in the market. Next year, 2025, may be tough for startups as they encounter issues that complicate starting new businesses. Key obstacles include stronger competition from international markets, more regulations, an unpredictable IPO market, and the need to develop cost-effective gene and cell therapies.
Here are five questions crucial players will need to address in 2025 to stay competitive and thrive in this fast-evolving field:
How Will China Licensing Deals Affect U.S. Biotech?
Many analysts have asked themselves this question. In the last 10 years, China has risen to be a major contender in the global biotechnology market. Where once, it was a place whose value was mostly in manufacturing and clinical trials, it has turned out to be a nucleus of drug sourcing and licensing. In recent years, US-based biotech businesses have recognized that they can tap into China for innovative molecules that can supplement or improve their pipeline. Consequently, this transformation has posed broad implications to the extent of the biotech ecosystem, especially for emergent US ventures.
In 2024, Chinese companies signed the most licenses they have ever had for drug candidates, most of which were in the early stages or have reached phase-1 development. Merck & Co. and Novartis are only two examples of large pharma mergers and acquisitions with China-based medicines. Many of these were toward emerging clinical data and new drug targets that were on the rise all over the world. The demand for drugs from China has been increasing, and analysts at Jefferies expect this trend to continue in 2025.
On the other hand, American enterprises are seeing a significant rise in biotechnology deals. This situation brings both challenges and opportunities. While other large players in the pharmaceutical industry are getting access to cheaper assets through these international partners, this may pose a threat to newly established US startups. Licensing drugs from China is cheaper because development costs are low. However, this creates a challenge for American organizations, which may need to face a market that expects high prices for their drugs.
There is more evidence that China is becoming a center for ‘me too’ drugs. These are new drugs that are similar to ones that are already approved. This trend is problematic for biotech companies that develop original drugs. Licensing activities between China and other countries can threaten US-based start-ups. To address this, these firms need to show how their drug candidates stand out and provide reliable clinical profiles.
Is Biotech the Next to Contract?
The biotech industry is currently in a decline and is expected to remain in this state for a longer period. It features a decreasing stock price, a declining IPO velocity, and recklessly high merger and acquisition ratios. Public biotech companies have been particularly affected, as the market capitalizations of most have now fallen to levels not seen before in years. The number of pivotal players is declining. Many have been bought by others, merged, or closed down.
In 2024, more than one hundred biotech businesses announced layoffs or restructuring, according to Mizuho Securities. The biotech sector’s stock indices performed worse than the overall market for a second time, showing that investors lacked confidence. Now, the unprecedented rise of regulatory uncertainty, high clinical trial failures, and struggling economic systems have maintained the industry in a state of constant change.
As more biotech firms delist from the NASDAQ and the number of new biotech public diminishes, emerging enterprises struggle for the growing scant attention and capital. Piper Sandler analysts found that half of the biotech businesses are somewhat or significantly below their cash balances, implying they are operating under financial constraints. The situation could stretch across the whole year, and forecasts suggest that the number of biotechnology companies might drop to levels not seen since–before the epidemic.
The situation has led to a ‘stock pickers’ market, where only the strongest and most promising players can secure the large funding needed for their research. New biotech startups are finding it hard to get funding from venture capitalists and secure loans for clinical trials. This struggle makes it difficult for them to advance their drug candidates into testing or meet regulatory requirements. Many of these corporations may face challenges in staying afloat in the coming years as they seek capital.
Will the IPO Backlog Clear?
The biotech market has been dormant over the last few years. While increasing in 2020, the number of Initial Public Offerings (IPOs) in the sector was rapidly decreasing and reached the minimum in 2021. Biotech enterprises that started during the pandemic are waiting for the market to open up. Although there have been some positive signs, many companies are still in line for funding.
In 2024, twenty-three firms went public. Most of them were further along in development, with their products in the middle or later stages of clinical trials. The result was a big success for the few corporations that held the first sale of shares to the public, as opposed to their start-up counterparts that usually have limited chances. For many of them, an initial public offering remains a distant dream, and the chances of achieving it can be quite uncertain.
One major issue that new biotech companies face is that early-stage companies still deal with risks. However, risks do not seem to be any lower for organizations readying preclinical or Phase-1 drugs. Angel investors have become reluctant to fund early-stage biotechnology, as the development of medications is a very risky affair. Therefore, many startups that expected to list this year on the stock markets had to postpone, or they had to search for funds from sources other than the sale of new shares in the primary market, such as private rounds of funding or mergers and acquisitions.
Despite strong hints that the Initial Public Offering (IPO) market will reopen in 2025 or 2026 at the earliest, there is much uncertainty today. Analysts have observed that more biotech startups that became confidential went on to participate in ‘mega-rounds’—large financing rounds aimed at meeting their staffing needs. Big players in the biotech industry may not be ready to float their stocks soon. The future of transitioning from private ownership to publicly traded status for biotech firms still raises many questions. Some new companies might need to wait longer before making this move.
What Could Rekindle the Cell and Gene Therapy Field?
Gene and cell therapies are among the hottest topics that the biotechnology field is interested in today. New treatments in the last few years for diseases like sickle cell anemia, hemophilia, and muscular dystrophy have put the field in the limelight.
But, as is always the case with emerging fields, there are considerable challenges to master in 2025. Cost control and making therapeutic products feasible to commercial buyers are still major obstacles. The mega pharmaceuticals like Pfizer and Roche have gradually withdrawn the funding for the research and development of gene and cell therapies because they do not see profitability in such development.
One example of an issue in the sector is Bluebird Bio’s (BLUE.O). This company has several gene therapies that are approved for use, including remedies for beta-thalassemia and sickle cell disease. Bluebird Bio has faced serious financial problems, including a drop in its stock price. The inability to successfully sell their cures and make an adequate return on investment on the high research and development costs leads to question marks over the future of gene therapy products.
To achieve a new, necessary level of biological growth in the field in 2025, the biotech entrants will have to show that the therapies they invent are not only scientifically innovative but also economically feasible. There is now a strong interest in successful commercial launches, showing that various regeneration treatments provide value to both patients and investors. Thirdly, advancements in technologies such as Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) can become essential to increasing the efficacy and affordability of therapies.
Will the Upswing in Private Mergers Continue?
Though, in 2024, public biotech acquisitions were relatively down, the number of mergers and acquisitions increased. HSBC reported that private biotech companies have been purchased for more than $1 billion. They highlighted important deals, including GSK’s purchase of Aiolos Bio and its merger with Merck, according to EyeBio. This surge may well be evidence that large pharma is relying more heavily on private biotech to provide additional pipelines as it struggles with the threat of losing exclusivity on large-volume, high-margin drugs.
Many biotech start-ups dependent on venture capital financing find the services of Private M&A deals as a way to get merges with bigger companies that have deeper pockets. This means that for the several startups that are experiencing some hardship in going public or delaying their IPO, M&A may be the only available option to carry on their businesses and source for further research financing. Other forms of transactions, such as reverse mergers, through which private enterprises acquire public companies to get access to public markets also could become more popular in 2025 as biotech companies are not keen to go IPO.
Biotech companies attract large pharmaceutical firms looking for new drug candidates to refresh their pipelines. The rise in private deals predicted for 2024 suggests more opportunities will arise in 2025. This creates better chances for biotech startups to find the right strategic buyer or partner.
Final Thoughts
The year 2025 for emerging biotech companies might prove formidable but full of opportunities. First is the global competition, along with the industry’s steady decline, as the biggest challenge for startups in the future. For new biotech players, success will depend on finding the right partners, following regulations, and proving that their products can be used commercially. How enterprises adapt to these challenges will be crucial for their future survival.
