A Panic Letter and the Quiet Reset of American Biotech

By Opus Connect

The moment should have been a turning point. A small U.S. biotech company had finally secured what early-stage firms fight for: a Phase II clinical program, a companion diagnostic, and formal approval for federal funding from the National Institutes of Health.

“They actually got a letter [saying] you are approved,” recalled Dr. Stanislav Glezer, managing director at Outcome Capital, a life sciences specialized advisory and investment-banking firm who has been working with a company he prefers not to name for confidentiality reasons.

“And then suddenly they got a letter saying, well, we’re not deploying funds,” he said.

The message, delivered to attendees at a recent Opus Connect healthcare M&A conference in New York, captured the sudden shock. The company had been counting on the federal money to keep its clinical work on track. The check didn’t arrive for five months—an eternity for a team dependent on NIH to maintain operational viability.

“But then it came,” Glezer said. “Then everything kind of went back to ‘normal’.”

To Glezer, an investment banker and veteran healthcare executive with more than 30 years in biopharmaceuticals and medical technology, that single delayed check is not a simple bureaucratic hiccup; it is rather a warning sign of an unprecedented combination of pressures reshaping U.S. biotech and threatening the survival of early-stage companies.

A squeeze from above and below

Two forces, he says, are hitting the sector at once.

First, Washington’s growing pressure on drug prices has pushed large pharmaceutical companies to tighten spending. Second, political efforts to bring more drug manufacturing back to the U.S. require billions in new capital investment.

“If you’re a large pharma and you’re faced with pressure on the top line and the need to spend a few billion dollars, what are you going to do?” he asked.  “You’re going to cut anything that does not deliver income now.”

Mid-stage development deals—along the pathway for biotech companies to partner or exit—are among the first casualties.

“What that delivered as a message to venture capital,” Glezer said, “if you have companies you thought you would exit through an M&A to those large strategics in the next two-to-five years, it’s going to be tough… If you’re a venture capital firm, and you’re seeing that you’re not going to get that cash back into your fund through exists, and will need to keep existing companies alive longer, do you really want to spend money and bring new ones into the portfolio?”

For now, he said, the answer is mostly no.

“I see companies that literally froze their operations for the past year. It’s dramatic.”

A strategic market split in two

The focus of large strategics on preserving cash has challenged the conventional logic that the optimal time to acquire a biotech company is around Phase 2, when costs are still reasonable but a significant portion of development risk has been retired.

Some buyers now consider the duration required to complete Phase 3, navigate regulatory review and approval, and secure market access for full-scale commercialization as too long to have capital “frozen” in an asset. As a result, they are increasingly willing to pay premiums for assets that are already commercialized or have at least completed Phase 3.

Interestingly, other strategics have taken a completely opposite approach. They are pursuing smaller, lower-cost deals, acquiring assets as early as the lead-optimization stage, or even investing in platforms without selected molecules. This has left many Phase 1 and Phase 2 companies in a difficult position: substantial capital has already been invested to reach this stage, yet their path to liquidity has become unclear.

Deceptive market statistics

While smaller firms struggle to raise even modest rounds, a handful of late-stage companies are attracting enormous financings.

“If you look at the news, there are announcements of $600 million financing, $400 million mega deals,” Glezer said. These huge rounds mask how sharply overall deal volume has dropped, with a few large investments absorbing most of the available capital.

Meanwhile, the government-funding safety net that once supported early science has grown less reliable. Glezer’s NIH story, he noted, is not isolated.

“NIH funding has been significantly reduced,” he said. “It’s a double whammy where a lot of the companies are not getting either the private or the government finance.”

Some firms now look overseas for a lifeline. Australia’s generous research tax credits, for example, have become a magnet for U.S. biotechs seeking lower-cost clinical trials.

“They raise money in the U.S., whereas they spend it in Australia,” he said.

Picking through the rubble

As companies burn through cash, Glezer sees another trend emerging: venture studios and incubators snapping up abandoned assets—especially intellectual property (IP).

“I’m seeing companies look for IP from these folding-down entities for literally pennies,” he said.

To him, the collapse of the old funding model is forcing a new way of building biotech companies. Instead of aiming for a single milestone, like an initial FDA filing or early clinical trial, founders must now plan for the entire life of the company.

“It’s no longer, can I just get this thing to the IND for Phase I?” he said, referring to the Investigational New Drug application required before human testing. “You really need to think about the whole life cycle of the company.”

A painful truth beneath the numbers

Toward the end of the discussion, Glezer shared a story that reveals a deeper flaw in the U.S. healthcare system. Some time ago, his team had partnered with a major health system to support patients with severe, uncontrolled diabetes, expecting that free state of the art care would improve outcomes and reduce costs.

It didn’t.

“Failed miserably,” Glezer said, adding that the data revealed that 40% of these patients were taking depression medications known as SSRIs, or selective serotonin reuptake inhibitors. “Try to figure out their medication adherence issues if the patients are not even interested in living.”

His team found that depression, not a lack of instruction, kept patients from following their treatment plans.

Glezer’s point: the system is built around protocols, not around patients with intertwined physical and mental health needs.

“You need to rely on the clinician making the right decision for the right patient,” he said. “But this is not how the current system operates.”

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