First published in our Biotech Review of the Year publication (Issue 10).

Indeed, according to KPMG, in Q3 2022 the number of global VC deals fell to the lowest level in five years, whilst global VC investment dropped below $100bn.

Perhaps inevitably, the economic headwinds are also being felt by the UK’s biotech market. The latter half of 2022 has not only seen a fall in the amount of capital raised – UK VC investment decreasing by 11% between Q2 and Q3, according to the UK BioIndustry Association – but a drop in the number of such deals, too. Meanwhile, private equity’s appetite for M&A deals has been diminished by a cocktail of inflation and increased interest rates. The chilling effect of falling stock markets – particularly NASDAQ, which has tended to be the market of choice for UK biotechs – has served as an impediment to IPOs as well as preventing listed companies from raising additional capital.

But, even amidst the concerns of a recession, the sector can look ahead to 2023 with some optimism. Interest in biotech remains strong even as investors adapt to changed market conditions. The result is that whilst raising money on public markets has certainly become more difficult, the latter stages of 2022 have seen a number of investors continuing to deploy substantial amounts of funding into an array of privately-held life sciences companies. Indeed, several big institutions – banks and PE houses, for instance – have established funds to make varying types of investments in the life sciences sector, whilst a number of smaller venture funds have likewise sprung into being. One such example of the former is J.P. Morgan Asset Management’s Life Sciences Private Capital team, launched in November 2022, which looks set to start deploying venture and growth capital in 2023. Elsewhere, Blackstone Life Sciences announced the close of its royalty and structured credit-focused Life Sciences Yield Fund at $1.6bn in April 2022, the largest first-time fund of its nature. Overall investment may have dipped, but, as the new funds demonstrate, wellsprings of capital do still exist for life sciences innovators.

Meanwhile, when it comes to mergers and acquisitions, the UK saw a flurry of higher-value acquisitions by large US-based life sciences companies in late 2022, a trend that may well continue into 2023. Here, the acquisition of DJS Antibodies by AbbVie for around $225m is emblematic. At the same time, a healthy flow of deals in the secondaries market – a hallmark of 2021 that saw private equity funds sell life sciences assets to each other – could provide something of an ongoing tonic to depressed valuations. For all the choppy waters, then, the sector may yet weather the storm in 2023.

After all, the fundamentals remain strong. The UK has retained its allure as a biotech hub, with the Government publicly committed to making the country a life sciences superpower. The Golden Triangle – the universities of Oxford, Cambridge and London – remains a source of strength: a report by Beahurst in 2022 found that Oxford alone had produced 90 spin-out companies across multiple sectors. Evidently, UK spin-outs continue to be regarded with interested eyes.

What’s more, Covid-19-inspired interest in life sciences – not least therapeutics – has yet to dissipate. Gene therapy, for instance, remains a real source of investor interest, whilst AI-based drug discovery is not only grabbing headlines, but, as is explored elsewhere in this issue, investors’ attention, too.

As we look to 2023, we can do so with the confidence that investors are not turning their backs on life sciences. They remain poised to spend – albeit on different terms and using different structures as might have been the case had it not been for the current economic climate. The waters of 2023 may look choppy, but for the life sciences sector, they remain navigable.