How Should Biotechs Strategize for 2025

Divya Yerraguntla, Head, Go-To-Market, Treehill Partners

As the biotech industry looks toward 2025, companies must navigate a complex landscape marked by regulatory challenges, evolving funding trends, and technological advancements. Their strategies will drive innovation, ensure sustainability, and maintain competitiveness. A few critical strategic imperatives for biotech firms in light of the latest market dynamics and investor behaviors are:

Embrace Innovative Research & Development

The biotech sector thrives on innovation. With increasing investment in early-stage ventures, companies should continue to prioritize cutting-edge research and development (R&D). Technologies like CRISPR, AI, and machine learning are transforming drug discovery and development, offering unprecedented opportunities to expedite time-to-market for new therapies. For instance, Xaira Therapeutics, a San Francisco-based startup using AI for drug discovery, secured over $1 billion in Series A funding, underscoring the critical role of advanced technologies in attracting substantial investment.

Foster Strategic Partnerships

Collaborations remain a cornerstone of biotech success. Strategic alliances with academic institutions, pharmaceutical companies, and tech firms can enhance resource sharing and innovation. These partnerships are precious in navigating the regulatory landscape and expanding market reach. For example, the recent buyouts of Seagen and Cerevel have provided further opportunities for liquidity and demonstrated the benefits of strategic collaborations in the biotech space.

Regulatory Compliance and Advocacy

Staying abreast of evolving regulations and proactively advocating are crucial for biotech companies. By working closely with regulatory bodies, biotechs can ensure compliance and shape policies supporting innovation and patient access to new treatments. This proactive stance is critical in a more cautious funding environment, where regulatory hurdles can impact investment decisions.

Robust Commercialization Strategies

Developing robust commercialization strategies is vital for biotechs aiming to bring new treatments to market. These include thorough market analysis, pricing strategies, and access programs to ensure affordability and accessibility. Valuation sensitivity and milestone-based funding approaches require disciplined project management and strategic planning, providing tangible results and continuous investor support.

The need for strategic commercialization to support corporate growth and innovation is underscored by the $13.7 billion in secondary raises already seen in 2024, highlighting the importance of effective market entry and expansion plans.

Talent Acquisition and Retention

Attracting and retaining top talent is now essential for fostering innovation and sustaining growth. Biotechs must create a continuous learning culture and provide competitive compensation packages to build a skilled and motivated workforce. As the industry evolves, having a team capable of navigating new technologies and regulatory landscapes will be essential.

Leveraging AI and Digital Health Technologies

The surge in funding for AI and digital health technologies underscores the importance of integrating these tools into biotech operations, furthering digital transformation, and improving efficiency. AI-enabled remote patient monitoring (RPM) and point-of-care diagnostics will play a significant role in the future of healthcare, offering real-time data collection and interpretation. Enhanced communication between healthcare providers can lead to more coordinated, efficient, and cost-effective care, as Deloitte predicted for 2025.

Adapting to Investment Trends and Preparing for the Future of Venture Capital

Understanding and adapting to current investment trends is crucial for biotech companies. The significant increase in funding for healthcare-focused biotechs in 2024, with $2.9 billion raised in the first quarter alone, reflects growing investor confidence. However, tightening funds for pre-clinical platform biotechs indicates a shift towards companies with clinical-stage assets. Biotechs must, therefore, focus on advancing their assets to clinical stages to attract investment.

While venture markets are currently cautious, the future looks promising. Several new groups are launching this year, including Regeneron's venture arm and Goldman Sachs' first life sciences fund. Established investors like Arch Venture Partners and Canaan Partners are also actively raising new funds. Biotechs should prepare for an uptick in venture capital activity by the end of the year and into 2025, positioning themselves to attract investment by demonstrating clear progress and tangible results.

Navigating Economic and Political Landscapes

Economic and political factors will inevitably influence biotech strategies. Blackrock notes that stocks' historical performance during election years suggests potential opportunities for investors regardless of political outcomes. Biotechs should focus on their fundamentals while staying informed about political developments that could impact the sector. Furthermore, McKinsey's prediction that up to $265 billion worth of care services could shift to home settings by 2025 highlights the importance of adapting to changes in healthcare delivery models.

Capitalizing on Secondary Markets and IPOs

The positive sentiment in public biotechs, driven by data releases and secondary raises, presents opportunities for liquidity. Private companies should consider timing their IPOs strategically, focusing on clinical-stage assets and experienced management teams to enhance their market appeal. The drop in money for pre-clinical companies and the challenges of going public reinforce the need for strategic planning and strong execution.

Focusing on Key Areas of Innovation

Identifying and investing in key areas of innovation will be critical for biotechs aiming to stay ahead. AI, weight loss, CNS (central nervous system) therapies, cell and gene therapies, digital health, medical equipment, mental health, MedTech startups, urgent care, long-term care, rehabilitation, and home care will be key focus areas in the next few years. Biotechs should align their R&D and commercialization efforts with these emerging trends to capitalize on market opportunities.

It is a given that every industry is going through a transformation, and biotechs are no exception. But if they pay attention to the above imperatives, the probability of success will be higher.

Divya Yerraguntla, Head, Go-To-Market, Treehill Partners