Lower demand for COVID-19 vaccines means financial strain for biotech firms, particularly startups, but pharmaceutical giants are eyeing acquisition targets.

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A long, uncertain and capital-intensive road from discovery to profitability makes biotech a risky and costly business. Slower economic growth and higher inflation and interest rates leave biotech firms more exposed than most. This is especially true of startups. Last year biotech startups raised $34 billion globally. In the U.S., 61 launched IPOs in the first six months. Only 14 did so in the first six months of 2022. Funding is harder to come by, not only for aspiring public companies, but also for private ones as lenders grow more hesitant. The NASDAQ Biotechnology Index has trended downward all year.

While such developments read like portents of doom, context is key: COVID-19 vaccine sales propelled the biotech sector to unprecedented heights in 2020 and most of 2021. The effectiveness and thus the success of a vaccine inevitably leads to a decline in demand. As of this writing, 67.5% of the global population has received at least one dose of a COVID-19 vaccine, according to the University of Oxford’s Our World in Data project.

The fortunes of biotech firms have risen and fallen accordingly. For example, German biotech firm BioNTech, which partnered with Pfizer on its COVID-19 vaccine, reported a 40% drop in sales in the second quarter. But with annual revenues of $19 billion, BioNTech is still worth five times what it was before the pandemic.

Another reason for the slowdown in biotech is the exodus of non-specialist investors. The pandemic attracted a broad range of investors to biotechnology, and non-specialists have largely been among the first to retreat from it. Other investors see value in lower valuations, particularly if a company has treatments or drugs in late-stage trials, The Economist reports. Tim Haines, Managing Partner of life science investment firm Abingworth, notes that in the past three years, venture capital firms have raised over $100 billion to invest in life science businesses, and they still have more to spend.

Pharmaceutical giants are among those looking to scoop up high-potential biotech startups, suggesting a possible uptick in M&A activity in the sector. Flush with revenue from COVID-19 vaccines and treatments, American drug giant Pfizer has been leading the pack, making over $25 billion worth of acquisitions in the past 12 months. Most recently Pfizer announced it will acquire Global Blood Therapeutics for $5.4 billion, its fifth acquisition since December. A buying spree is underway.

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