Hiring with precision: Navigating biotech market fluctuations
After several record years for biotech investment, the market has taken a downward turn in the past year. A return to lower levels of funding post-pandemic, combined with war in Ukraine and rising levels of inflation, have impacted venture capital funding, with implications for the biotech and life sciences sectors. Confidence has further been shaken by the recent collapse of Silicon Valley Bank. We take a look at the issues currently facing biotech investment, with a particular focus on the implications on workforces and hiring, and explain the importance of strong company messaging as we look to the future.
Fall in Venture Capital Investment & Workforce Reduction
2021 was a boom year for venture capital investment in biotech, with it hitting a “record high of $51 billion”. In September 2021, the NASDAQ Biotechnology Index “reached an all-time peak”, but between then and February 2023, it dropped by 23% and venture investing “fell to a more routine $37 billion last year”. It was also estimated that VC investment globally in pharmaceutical firms was $7.8 billion in Q4 2022, which is a drop of 32.5% year-on year.
Focusing on early-stage financing for small and midsize biotechs, some have argued that the decline in financing was due in part to “unfavorable clinical news, rising interest rates, and investors shifting their focus out of life sciences”, after the boom years of 2020 and 2021.
This is connected to similar declines in venture capital funding more widely. KPMG reports that “[i]n Q4’22 both the number of VC deals and the total of VC investment in the US continued to fall”. Fenwick’s analysis of Silicon Valley venture financing reported that “[t]he total number of venture financing in Q4 2022…declined 14% from Q3 2022”.
Nature Biotechnology has argued that “a more discriminate financing environment is emerging”, noting that investors want “much firmer proof that an approach or asset is working before they put dollars behind it”.
Simultaneously, there have been significant layoffs in biotech companies as they look to cut spending and focus resources on priority programs in a ‘flight to quality’. For example, tech and biotech companies are planning to cut more than 19,000 jobs in the Bay Area, which is part of Big Tech’s response to “right-size its employee base”. The current situation has been described as an “unrelenting cratering of the biotech workforce marked by nearly 40 companies revealing head count reductions so far this year”. This is a marked shift from the peak of the hiring boom just 24 months ago which led to an unsustainable inflation of salaries and job titles, described in Boston as a war on talent “on steroids”.
The picture in the UK is mixed, with the BIA’s report on biotech financing in 2022 noting that the UK life sciences and biotech sector “secured its fifth best fundraising year ever” and that the UK has maintained its position as “Europe’s pre-eminent biotech sector”, but that public markets were difficult and investor appetite was low. As life returned to normal in 2022 post-pandemic, “healthcare and biotech stocks once more fell victim to risk aversion, as soaring inflation and interest rates swung the market pendulum from growth to value sectors”. The resulting company reorganisations, mergers and consolidations have seen the number of active job seekers from large, publicly traded companies increase, whilst privately-funded businesses tighten their budgets and maximise the output of ‘lean’ workforces.
Failure of Silicon Valley Bank
The difficult financing climate has been exacerbated by the failure of Silicon Valley Bank. The importance of the bank to biotech and life sciences meant that its failure left the sector particularly vulnerable, with some companies fearing they would not be able to access their money. In the US, “[n]early half of all U.S. venture-backed technology and life science companies bank with SVB”. This has added to the pressure on biotech companies, although some are hopeful that the bank’s failure was a unique event, rather than an indication of more widespread problems in the sector.
The UK subsidiary of SVB (SVB UK) was acquired by HSBC, after work by the UK government and the Bank of England. This acquisition was described by BIA CEO Steve Bates as “a win for U.K. Life sciences and a win for U.K. banking” (quoted in Fierce Biotech). Some commenters credited HSBC with saving “the heavily-exposed UK biotech sector from collapse”, with BIA information showing that approx. 40% of the UK’s biotech companies banked with SVB UK.
Hope for the Future
Looking to the future there are signs of optimism beginning to appear:
It remains to be seen whether recent developments such as HSBC’s acquisition of SVB UK will steady investor confidence and whether the market will open up later in the year, but there are encouraging signs at this stage. From a global recruitment perspective, challenges faced by the tech industry mean that biotech companies could make opportunistic hires within the growing fields of ML and AI “as tech companies face layoffs and talented employees come briefly onto the market”, Employee churn drives the cross pollination of people and ideas across the sector, benefitting businesses reliant on niche skill sets.
Whilst it can be a good time to hire in a market downturn, it is all the more important that companies consider their proposition through the eyes of candidates to help ensure they are the biotech of choice: investment jitters in VCs are reciprocated in candidates with the science, pipeline, executive management team and cash runway being scrutinised more heavily. A strong company narrative, including clarity on financial position, must be conveyed to the market if businesses are to attract the best talent during this period of turbulence.
Armstrong, Annalee (21st March 2023), Return of the megaround: Is biotech back from the brink?, Fierce Biotech
Armstrong, Annalee, Max Bayer and Gabrielle Masson (10th March 2023), UPDATE: SVB failure triggers shock waves across biotech industry, Fierce Biotech
Askham, Angie Voyles (23rd February 2023), Biotech downturn hurts companies targeting autism-linked conditions, Spectrum News
Avalos, George (13th February 2023), Tech and biotech layoffs erase more than 19,000 Bay Area jobs, The Mercury News
Bayer, Max (1st March 2023), G1 sheds staff while Sorrento WARNs of cuts amid torrential downpour of industry layoffs, Fierce Biotech
BIA (9th Feb 2023), UK biotech financing 2022
Fenwick (Q4 2022), Silicon Valley Venture Capital Survey
Fidler, Ben (13th March 2023), ‘What a mess’: How biotech startups grappled with SVB’s collapse, BioPharma Dive
GlobalData Healthcare (15th March 2023), HSBC acquires SVB UK in strategic move to expand presence in biotech sector, Pharmaceutical Technology
Godfrey, Sarah (8th March 2023), How to avoid the boom and bust of healthcare and biotech investing, Portfolio Adviser
Kemler, Steve (23rd February 2023), Biotech’s Market Outlook in 2023 & Beyond, Bioprocess Online
KPMG (Q4 2022), Venture Pulse Q4 2022
Lawrence (20th March 2023), The new frontiers of pharmaceutical innovation – according to investors, Pharmaceutical Technology
Peebles, Angelica (28th July 2021), Boston’s Biotechs Pull Out All the Stops in Hiring Boom ‘On Steroids’, Bloomberg UK
Peebles, Angelica, Ilena Peng and Bloomberg (10th March 2023), The Silicon Valley Bank meltdown could be a disaster for downtrodden biotech startups, Fortune
Prabhu, Abhinaya (20th March 2023), March 2023: 18 UK-based tech startup funding rounds you shouldn’t miss, Tech Funding News
Ramko, Rich and Ashwin Singhania (6th March 2023), Financing for Emerging Biotechs: Recent Trends & Predictions for 2023, Bioprocess Online
Senior, Melanie (31st March 2023), Precision financing, Nature Biotechnology
Reuters (14th March 2023), SVB shock could have chilling effect on British biotech sector, FBC News
ValiRx (30th March), Spring Budget key messages: R&D tax relief rate
Vedantam, Keerthi (10th March 2023), Silicon Valley Bank Bet Big on Biotech. And Now It’s Gone, Crunchbase
Waldron, James (13th March 2023), UK biopharma body praises bank for keeping doors open at life science startups by rescuing SVB UK, Fierce Biotech
Posted on : 13th April 2023