Biotech is benefiting from belt-tightening, but some pain still to come — Bruce Booth 

Atlas Venture partner’s views on the capital markets, modality plays and industry efficiency, on The BioCentury Show

Bruce Booth believes the belt-tightening of the past few years will presage a better financing outlook for biotechs, but the ripple effects will be felt for some time to come.

The Atlas Venture partner told The BioCentury Show there are clear positive signs for biotech, with the XBI bouncing back from its low in the mid-60s, February’s robust follow-on activity — one of the largest ever, he said, including PIPEs and other transactions — and a stream of M&A deals. “The billions of capital that’s been returned to specialist investors now is recycling into the ecosystem,” he said. 

“All of those things create a favorable backdrop for companies trying to advance their programs,” he said.

“Everybody did belt-tightening the last few years,” said Booth. “So you’re coming from a good base in terms of overall burn rates, and companies, I think, are in a reasonable place to be financed by the next wave of investors.”

However, the private markets still have difficult areas, according to Booth, with some late-stage companies continuing to need shoring up by VCs. “There’s lots of us in the venture ecosystem still backing lots of companies,” said Booth. Those private companies hurting most, though, are “in that gap of the old crossover market, where the public investors that had been doing that have still not come back in full force.”

But there’s still a lot of capital in the system, said Booth, and many opportunities for innovation and new products, from metabolic disease to new modalities. Finding the right ones, selecting the right targets and knowing when to stop pursuing them, and fleshing out which technologies will work in the long run, is a lengthy, capital-intensive and often flawed process, but the failures along the way also yield new biology.

Booth discussed recent data he analyzed in his 2023 Year End Review showing that industry efficiency in R&D declined from 2017 to 2022. The numbers, based on a 2023 IQVIA report, use a 10-year trend of “composite success rates,” measuring the proportion of compounds that progress through successive phases of development. Incorporating numbers from Phase I to regulatory review, the success rate decreased from 16% in 2017 to 6.3% in 2022.

“I was surprised by the stats to be honest,” said Booth. He believes that some of the attrition is due to the inherent risk of new modalities, which bears out in Phase I and Phase II.

“I think the increase in risk there, in particular in Phase I, is a good thing. That’s when you find out that you can’t get the drug where you want it to go, or there’s immunogenicity, or there are other challenges, when you first take a new modality into patients,” said Booth.

Other factors in the attrition rates, such as inconsistency with “regulatory goalposts” are cyclical, and part of the ebb and flow of the business.

However, the factor that has yet to wash out is the influence of the bear market. “Everybody belt-tightened since that data,” which went through 2022. The slower burn rate means that many programs were terminated, which will show up as failures. Whether that’s sustained or industry finds a way to reverse the efficiency curve will be watched, he said, “but there could be a financially driven blip in the datasets that we should be mindful of not over interpreting.”