The life sciences sector has traditionally leaned on public offerings to raise funds necessary to support the heavy costs of development for pharmaceutical and therapeutic biologic products. However, these costs are escalating, with the average cost of discovery and development jumping to over $3 billion. Moreover, only around 12 percent of therapeutic products that enter the clinical development phase end up getting approved after a hefty 10-15 years in development.
Such strenuous challenges have impelled pharmaceutical and biologic product development companies to navigate fluctuating fundraising environments. This has made alternative fundraising strategies even more crucial given the current volatility in global public markets and the rising hurdle of M&A in life sciences. As a result, many companies in the life sciences, biotechnology and pharmaceutical sectors have begun to explore diversified funding sources.
As part of this approach, these corporations are now considering collaboration and licensing transactions at an earlier development stage as an alternative pathway to fetch crucial funding necessary to ride out turbulent market conditions. According to a report from 2021, M&A transactions have consistently provided an attractive opportunity for investors in life sciences companies to exit their investments. However, with recent capital market freezes, public offerings have been chilled, allowing only $4 billion to be raised in initial public offerings in 2022, and scarcely under $1 billion in the first half of 2023.
The M&A market for life sciences is also on a downslide over the last 12 months, in terms of volume and deal size. It is literally getting harder for companies in the sector to find high-value alternative transactions. As a result, pharmaceutical companies are turning towards debt financing and royalty stream sales or synthetic royalty transactions, but these routes are often constrained or unfit for earlier-stage products.
Life sciences companies are also looking to devise strategic collaborations and licensing transactions with fellow companies in the sector to secure funding for discovering, developing, and commercializing new therapeutic products. In the year 2022 alone, alliance deals inked by life sciences companies accounted for a potential value of over $132.1 billion.
Despite the turbulent market conditions, life sciences companies are steadily on the lookout for chances to obtain product rights that may not have been available in a stable capital market scenario. It is clear that the sector is continuously pressed to identify substantial funding channels for high-risk, high-ambition, and life-altering product development efforts. In this pursuit, out-licensing or selling rights to therapeutic products in life sciences and collaborating with other life sciences companies have emerged as key tools to navigate tough funding markets.
The original article can be found on Bloomberg Law.