‘Holding on by its fingernails.’ The biotech industry in Massachusetts braces for another tough year.

So startups hoping to go public didn’t dare to step into the turbulent and sluggish stock market. Many companies are trying to survive until the economy picks up. Others have recently gone out of business, including once-promising Colorado cancer company Clovis Oncology and Cambridge neurological startup Faze Medicines.

“There were a lot of very good companies that were planning to go public early last year, and as a result they were in survival mode,” said Jeffrey Quillen, a partner at Boston law firm Foley Hogue. Told. From founding a biotech startup to debuting on the stock market. By the end of 2022, the biotech industry will be “holding on its fingernails,” he said.

Many of those enthusiasts attended the biggest biotech business meeting of the year, the JP Morgan Healthcare Conference, in San Francisco last week. Hotel rooms and restaurant booths have become conference rooms for companies pitching to investors, dealing with big pharmaceutical companies, or banking for big breakthrough acquisitions. But the money that was freely flowing a few years ago is clearly harder to come by. The hall had an ominous feel to it, with many predicting a potentially grim outlook into 2023.

Jean-Jacques Bienaim, CEO of BioMarin, a California pharmaceutical company, said, “Many companies that should not have been funded were funded because there was ‘free money’ for several years.” said. meeting. “We will see companies disappear, merge and be acquired.”

Biotech leaders have warned about this washout, and small businesses across the country, including Boston, are already resorting to layoffs or abandoning experimental drug programs to buy themselves another year or two. industry The underlying problem—growing too fast—isn’t unique to Massachusetts, but the Boston area is widely considered the epicenter of biotechnology, so the pain could be particularly pronounced here. . But some within the industry say the purge could be healthy in the long run.

Kendall Square Main Street. From its longtime home base, Boston’s biotech industry spills out to Fenway, Seaport, and surrounding suburbs.Jonathan Wiggs/Globe Staff

“If our sector is going to take a hit, Boston is squarely in sight,” said Hussain Moraj, a Deloitte consultant and head of life sciences in New England. “There will be a culling, and unfortunately good science will fade with bad science, but the industry will grow stronger.”

Despite the recession, the funding tap hasn’t turned off. The company is headquartered in Massachusetts, according to a recent report from the Massachusetts Biotechnology Council. has raised $8.72 billion in venture capital funding in 2022. This is his 36% decrease from the previous year, but it is still the second highest year on record.

Many of these companies are based on new ideas for treating cancer and immune diseases. Others are creating new or improved forms of gene therapy or using artificial intelligence to design drugs.

But initial public offerings have been dire, with only eight biotech companies in the state going public last year, up from 25 the year before. 26 Massachusetts-based biotech acquisitions totaled about $5.9 billion, compared to about $64 billion in 2021. I was reluctant to buy.

Many industry leaders expect funding and acquisitions to pick up quickly this summer, but expect it will take longer for IPO appetite to build. Management has raised several national and global concerns. Inflation, rising interest rates, the specter of a recession, war in Ukraine, tensions in Congress, the Drug Pricing Act, etc. will require a change in forecasts.

“These are the issues weighing on the sector,” said Barry Greene, CEO of Cambridge-based Sage Therapeutics. “And it’s very difficult for Wall Street to embrace a sector that is so uncertain.”

Many companies are trading at a fraction of their peak, with total share prices below their cash on hand and timers ticking toward bankruptcy. Lexington-based concert pharmacy Kalls only had enough money to survive until June when it was acquired by Indian pharmaceutical company Sun Pharma.

“There has been a significant overcorrection,” said Andrew Hedin, investor at Bessemer Venture Partners (Cambridge). there are a lot of.”

Barry Greene, chief executive of Cambridge-based Sage Therapeutics, said, referring to the biotech industry, “These are issues weighing heavily on the sector.” It is very difficult to accept such a sector.”Angela Weiss/AFP via Getty Images

With small biotech valuations plummeting and big pharma cash-rich, investors expect big pharma to buy up. Chris Caruso, Deloitte Partner and Life Science Mergers and Acquisitions Coordinator, said: “Some of the companies that have been beaten are more likely to be targeted.”

It feels like a buyer’s market, but the wave of acquisitions hasn’t materialized yet. Last week, two of his smaller Massachusetts biotech firms, Albireo and CinCor, were acquired by a European pharmaceutical giant, delaying the start of what would normally be a busy season for biotech business deals. As Cincor CEO Marc de Garidel told The Globe, drug companies “seem to be pretty picky about what they want.” Cincor, which develops antihypertensive drugs, was acquired by AstraZeneca for $1.3 billion.

Experts say partnerships and collaborations between big and small businesses are starting to become more common Big companies are looking to invest in new science without the financial risk of buying outright companies whose experimental treatments may ultimately fail. Biotech companies that might have considered going it alone a few years ago are also seeing such partnerships as the lifeblood of their dwindling financial resources.

Chris Round, president of EMD Serono, the Rockland-based US healthcare business of German life sciences giant Merck KGaA, said: “And as we enter what we believe will be more difficult economic times over the next few years, I think, like other companies, we will probably do more.”

Many mid- and large-sized biotech leaders are relatively shielded from the funding slump and see the coming washout as a natural and necessary part of the boom-bust cycle. These executives say companies founded on a single hypothesis or a handful of unsuccessful experiments need not continue.

“It’s good to get rid of them,” said Richard Popps, CEO of Alkermes, an Irish pharmaceutical company headquartered in Waltham. “Companies with good science can raise capital, but the cost of capital will be infuriating,” he added.

Layoffs, which began on the rise in the biotech industry last year, could continue for cash-strapped companies. But Massachusetts officials say they are not worried about job losses in the sector because they are having such a hard time filling vacant positions. “There’s so much demand. It’s insane. This is a war over biopharmaceutical talent,” he said.

A woman’s reflection can be seen through colored stickers on the windows of Kendall Square on November 7, 2021.

Jessica Rinaldi/Glovestaff

Seth Ettenberg, chief executive of Bayer’s stem-cell subsidiary, BlueRock Therapeutics, based in Cambridge, extended his vacancy several years ago, offering candidates three to five offers. That may not happen anymore, job seekers may have to be less picky about who they work for, and benefits such as working from home may also be a problem. He added that we may need to be less demanding.

Biotech-focused venture capitalists say they will continue to invest in new startups, especially third, fourth, or fifth ones tackling the same problem or working on similar technologies. Note that funds do not flow freely in startups. Competitors.

“As the investment hurdles go up, fewer companies get funded. But by definition, the quality of what gets funded goes up,” says general partner at California venture capital firm Andreessen Horowitz. Jorge Condes said. “And hopefully they’ll be more focused and stronger.”

Rupert Vessey, president of research and early development at Bristol-Myers Squibb, which will open a new research center in Cambridge this year, doesn’t believe the local start-up’s scientific progress will slow. “The Boston and Cambridge ecosystems are incredibly strong and innovative, and with the critical mass of enterprise-building skills, we are confident they will weather this period and continue to lead the industry.”

The view that the region’s biotech industry would weather the storm resonated with many investors.

“Boston remains the biotech capital of the world,” said Hedin. “That’s not going to change anytime soon.”

Ryan Cross can be reached at ryan.cross@globe.com. follow him on twitter @RLCscienceboss.

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