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As biotech prepares to navigate uncharted waters, the sector's financing and financial performance data tells a story of resilience.
Financial performance
This chart shows biotech’s financial performance at a glance, comparing 2020 and 2021.
Public biotechs experienced a huge surge in revenues in 2021, with 63% of companies growing their top lines. Emerging leaders (companies with less than US$500 million in annual revenue) recorded a higher annual revenue growth rate (40%) than commercial leaders (35%). Collectively, the industry recorded an impressive 35% growth, compared with 16% growth in 2020, and hit nearly US$217 billion in total revenues. Net incomes had an extraordinary increase of US$23.2 billion, going from US$(18.8) billion in 2020 to US$4.4 billion in 2021.
The surge in revenues and net income was overwhelmingly driven by products related to the COVID-19 pandemic, particularly the mRNA vaccines developed by BioNTech and Moderna. If the top- and bottom-line results for BioNTech and Moderna were excluded, total industry revenues would have been US$176.6 billion (up from 11% in 2020), with net income essentially flat at US$(19.5) billion. Nevertheless, there were other biotech growth stories, notably in the cell and gene therapy field, where CRISPR Therapeutics increased its revenues by US$914 million as a result of an up-front payment from Vertex to develop, manufacture and commercialize its CTX001 gene-editing therapy, and uniQure’s license agreement with CSL Behring boosted its revenues by US$486 million.
Biotechs also invested in talent, adding 20,000 employees to their payrolls over the course of the year (up 8% on 2020 employee numbers). Market caps rose by around 2% to just under US$1.6 trillion. However, this represented a steep decline from the 39% market cap growth in 2020, presaging the huge fall in biotech valuations that began late in 2021.
This bar graph cash returned to biotech shareholders for each of the years from 2015 to 2021.
Throughout its history, biotech has very much been an R&D-driven industry, with significant amounts of capital spent to develop the next generation of therapies and diagnostics.
With M&A activity (US$11 billion) reaching a multiyear low in 2021, biotech commercial leaders opted to heavily invest in R&D (US$43 billion), while also returning US$23 billion to shareholders (in the form of stock buybacks and dividends) — the 56% of deployable capital to R&D far surpassed the previous five-year average of 38%.
Overall, 68% of public biotechs increased their R&D investment, led by Amgen, Novavax and Vertex, which all grew their R&D spending by over US$1 billion.
This bar graph is the EY survival index for emerging biotech leaders in the US and Europe for each of the years from 2019 to 2021, demonstrating how many years of cash these biotechs have on hand.
With public valuations dropping sharply, access to capital markets becoming more difficult and M&A yet to rebound thus far in 2022, biotechs that effectively manage their cash reserves will be in a stronger position than other competitors. Cash reserves are particularly critical for pre-commercial companies with no marketed assets. Companies unable to secure funding may be forced to restructure, shed employees or scale back research projects to limit their cash burn.
Encouragingly, however, over the 2019–21 period, public biotechs have significantly improved their cash reserves, driven by a sustained influx of capital from commercial revenues and investments. In all, 84% of commercial leaders hold more than five years’ worth of cash, and 98% hold at least three years’ worth.
While emerging leaders have lower cash reserves, their overall cash positions have improved markedly between 2019 and 2021, with only 14% now holding less than a year’s worth of cash reserves (compared with 35% in 2019), and 44% having at least three years’ worth (from 29% in 2019). That being said, according to one recent report, 128 biotechs were trading at a market cap smaller than the cash they had on hand.¹
This chart demonstrates the top 10 changes in public company market capitalizations between 2016 and 2021.
Unsurprisingly, BioNTech and Moderna recorded the highest growth in public valuations between 2016 and 2021, driven by the runaway success of their respective mRNA vaccines against COVID-19 in the past two years. Regeneron has also benefited from COVID-19-related products via its monoclonal antibody cocktail, REGEN-COV, supplementing the revenues from its legacy products Eylea and Dupixent.
Other notable leaps in market cap since our previous edition of Beyond Borders include Vertex, responsible for the cystic fibrosis orphan disease franchise; Seagen, a pioneer in next-generation antibodies, one of the new modalities promising to be of major significance for sustaining biopharma growth; and argenx for its recently approved Vyvgart, the only current treatment for anti-AChR antibody positive generalized myasthenia gravis (gMG).
This chart shows the top 10 biotech regions in the US.
The traditional biotech clusters of Boston and Cambridge (Massachusetts), the Bay Area (Northern California), and San Diego and Los Angeles and Orange County (Southern California) account for a significant amount of the industry’s financial presence in the US.
Massachusetts is the base for long-standing biotech leaders, including Biogen and Vertex, as well as new major players, such as Moderna, and leads all US regions in terms of the number of public companies, revenue, R&D spend and market capitalization.
The number of US commercial leaders (public companies with more than US$500 million in annual revenue) has jumped from 17 in 2016 to 31 in 2021. A record eight new companies joined the commercial leader group in 2021, led by Novavax, Fulgent Genetics and Vir Biotechnology, all of which saw their revenues grow by at least 840% this year.
This chart shows the top 10 biotech regions in Europe.
In comparison with the US, Europe lacks dominant biotech clusters that play a leadership role across the region. Sweden has the largest number of public companies, and the UK has the highest levels of R&D investment; however, Germany leads in terms of total revenue, market capitalization and net income, a performance driven almost exclusively by the enormous success of BioNTech in 2021.
The European financial metrics are dominated by a small number of commercial leaders, a group that included 15 companies in 2021 (compared with 10 in 2016). Three companies ascended to the financial leader group in 2021, with cannabinoid-focused GW Pharmaceuticals exiting via acquisition by Jazz Pharmaceuticals in May 2021.
Joining the commercial leader group in 2021 were argenx, CRISPR Therapeutics and uniQure, which each grew their annual revenues by over 1,300% in 2021. Notably, these companies all focus on new modalities: argenx is developing first-in-class antibody fragment technologies, while CRISPR Therapeutics and uniQure are focused on cell and gene therapy approaches.
This bar graph shows the capital biotechs raised in the US and Europe for each of the years from 2006 to 2021.
Last year delivered another impressive year for biotech financing: The US$115.3 billion raised by the industry was the second-highest total ever recorded (and 69% greater than the third-biggest total in 2019). Though it fell 4% short of the record-breaking performance in 2020, these two years jointly account for 29% of all of the financing raised by biotechs in the past 15 years. US-based biotechs contributed 79% of this total, dominating in all types of fundraising.
Debt and follow-on financing fell 48% and 10%, respectively (in each case, following an extremely active 2020), but venture financing and IPOs broke all previous records in 2021. Venture financing reached US$26.2 billion, a 25% increase over the previous record of US$20.8 billion in 2018. Meanwhile, a record 143 biotech IPOs occurred in the US and Europe (compared with a previous high of 96 in 2014), generating US$19.3 billion, 72% higher than the existing record set only the previous year. Of these IPOs, 30 were funded via special-purpose acquisition companies (SPACs) — another record.
The dramatic scale of financing in 2021 in part reflects the prominent public role biotech has played during the pandemic, particularly the validation of technology concepts, such as the mRNA platform used to create the BioNTech and Moderna COVID-19 vaccines. With few other competing fields for investment during the pandemic, large-scale institutional investors poured capital into the biotech sector in 2020 and 2021. With these institutional investors seemingly now rotating to other industries, the financing boom for biotech looks to be ending in 2022. Just US$16.3 billion was raised in the first quarter — less than half of what the industry had been raising quarterly over the previous two years, though the debt market is sustaining the pace seen in 2021.
This bar graph shows US and European early stage venture investment for each of the years from 2006 to 2021.
Early stage biotech venture funding has changed dramatically since we last published Beyond Borders. In 2016, total early stage capital amounted to US$6.4 billion across 432 deals; in 2021, we saw a record US$17.5 billion across 650 deals. Around 66% of the total US$26 billion VC investment in biotech in 2021 went to early stage deals, compared with a 15-year average of around 59%.
Over the past five years, early stage VC investment has totaled US$69.3 billion — nearly doubling the US$34.9 billion the industry raised over the previous 10 years. This in part reflects that late-stage companies have enjoyed high valuations and easy access to capital markets in recent years, with many consequently opting to go public rather than pursue late-stage VC investment.
Amid a generally darkening financing picture in 2022, note that VC investment continued to flow into biotechs in the first quarter. In all, the industry raised US$8.3 billion in the first quarter. Of that, US$3 billion was generated by Altos Labs, based in the Bay Area, San Diego and Cambridge, UK, focused on cellular rejuvenation programming, with Amazon’s Jeff Bezos among its investors. A key consideration for biotech VC funding will be whether the investor appetite will remain high if companies are struggling to exit, with the IPO market sinking and M&A still sluggish in early 2022.
This chart shows how early-stage biotechs focused on cancer and multiple indications attracted significant venture capital in 2021.
In all, four of the top six (and 12 of the top 20) largest VC rounds ever recorded by biotechs took place in 2021. Of the overall US$26 billion invested, more than half came from just 82 funding rounds — 36 of which were investments targeting the oncology space. Again, the US dominated fundraising, accounting for 66 of these 82 rounds.
The largest of these rounds went to Texas-based precision medicine company Caris Life Sciences, which raised US$830 million — the third-largest round in biotech history, behind only Grail Bio and Roivant Sciences in 2017. Caris has raised approximately US$1.3 billion in external financing over the past three years for its first-in-class liquid biopsy platform in oncology.
Some of the other largest early stage rounds of 2021 included:
Massachusetts-based EQRx, which received US$500 million in second-round investments as it pursues its goal of creating more affordable cancer drugs.
Neumora, also of Massachusetts, which attracted the third-largest seed round in industry history (US$500 million) for its neurology drug candidates and discovery platform.
Massachusetts-based biotech, Adagio Therapeutics , which raised US$336 million to advance its COVID-19 antibody treatment.
SOTIO Biotech, based in the Czech Republic, which attracted the largest VC investment of any European biotech, drawing US$316 million for its oncology candidate.
Prime Medicine, which secured US$315 million in Series A and Series B investment to develop its Prime Editing gene-editing platform, a spin-off from The Broad Institute.
This bar graph shows US and European biotech IPOs for each of the years from 2006 to 2021.
During 2020 and 2021, US and European biotechs carried out an unprecedented 216 IPOs, raising US$30.6 billion in the process (for contrast, the previous 10 years saw the biotech IPO market raise a total of only US$24.7 billion).
The record-breaking 2021 IPO performance saw 93% of companies priced in or above their proposed ranges as they entered the public market, with an average size of US$135 million. Biotechs Sana Biotechnology, Lyell and Erasca secured investments several times larger than they initially asked for when going public in 2021; Recursion Pharmaceuticals, an AI company focused on drug discovery, raised US$502 million after initially seeking US$100 million.
However, the pace of IPOs significantly slowed in the fourth quarter of 2021, with only 10% of the year’s total coming in the final three months. With biotech stock valuations beginning to decline in the third quarter, the end of 2021 saw just 15% of the year’s IPOs recording positive returns, with 31% seeing their value drop by 50% or more, and 66% losing at least 25%. In the first months of 2022, just eight biotechs executed IPOs, raising a cumulative US$342 million. This slow start in 2022 leaves biotech on track to raise its lowest total IPO capital in at least a decade.
This chart shows the top US and European biotech IPOs for 2021.
Over the course of 2021, 56 companies executed IPOs raising over US$100 million, up from 46 in 2020. Once again, oncology was a major target, with 49 IPOs generating US$7.4 billion overall (for comparison, the next most prominent therapeutic area was neurology, with 14 IPOs raising US$1.1 billion).
Ten of the top 20 IPOs went to companies with lead drug candidates either at a preclinical stage or in Phase I of clinical development. This includes the year’s largest IPO, Washington-based Sana Biotechnology, which raised US$676 million — a biotech IPO record — surpassing Moderna’s US$604 million in 2018, and second only to Serono’s US$1.1 billion IPO in 2000. Sana Biotechnology is focused on developing oncology treatments, including targeting T cells to address various blood cancers.
Other notable IPOs of 2021 included:
Utah-based Recursion Pharmaceuticals, which raised nearly US$502 million for its AI-driven drug discovery engine. The company has four clinical-stage programs and raised around US$420 million in VC funding prior to its IPO.
Evotec of Germany, which recorded Europe’s largest biotech IPO of 2021. Evotec has been traded on the Frankfurt Stock Exchange since 1999, but debuted on the US NASDAQ in the last quarter of 2021. It has 11 disclosed clinical-stage programs and over 100 earlier-stage candidates.
Rounding out the year’s top five IPO deals, Lyell Immunopharma and Instil Bio are both using cell therapy platforms to develop cancer therapies.
This chart provides a list of select SPACs for 2021.
According to EY research, 2021 saw 30 biotech SPACs, generating US$9.4 billion in investment capital; of this, more than US$4.8 billion came in the form of IPOs, while another US$4.5 billion came from private follow-on offerings — representing a significant uptick from the five SPAC deals that raised US$852 million in the previous year.
The largest of 2021’s SPAC deals was secured by Massachusetts-based EQRx, which aims to develop versions of blockbuster medicines at “radically lower” prices. As noted, the company previously raised US$800 million from VC investors and announced its first five pipeline drug candidates.
Only three of the year’s SPAC deals happened in the final quarter of 2021, with the market, like other financing streams, appearing to dry up. The market will be further constrained by the U.S. Securities and Exchange Commission’s March 2022 announcement of new rules intended to place greater restrictions on the SPAC market to protect investors.
This plot graph shows Capital raised by leading US and European regions, excluding debt, for 2021.
Massachusetts, Northern California and Southern California led the way in total equity and VC funding, as well as in the total number of equity rounds. Massachusetts alone raised US$26.6 billion in total equity financing (27% of the combined total for the US and Europe), and US$7.8 billion in VC (30% of the US and Europe total).
The US as a whole dominated the VC market, raising US$20.2 billion compared with US$6 billion for Europe. In terms of total equity, the US generated US$79.3 billion, compared with US$20.7 billion for Europe. The UK was the only European country to figure among the top five overall biotech investment regions, with Texas rounding out the list.
This chart shows select US and European biotech M&As in 2021.
As described in our companion EY Firepower 2022 report, 2021 biopharma M&A was a volume story, with smaller bolt-on transactions dominating the market. While the number of M&As with announced deal values (57 in 2021) reached its highest point for at least 15 years, the total value of those deals (US$65.9 billion) dropped for the second consecutive year, and reached its lowest level since 2017, down from US$164.3 billion in 2019 and US$119.2 billion in 2020.
The average deal size in 2021 was US$1.2 billion, lower than the average of US$1.8 billion over the previous 15 years. The largest M&A deal of 2021, Merck & Company’s US$11.5 billion acquisition of Acceleron’s late-stage rare disease candidate sotatercept, was dwarfed by the big transactions of recent years, such as Bristol Myers Squibb’s US$74 billion purchase of Celgene or the AstraZeneca-Alexion (US$39 billion) and Takeda-Shire (US$62 billion) deals. Other notable transactions of the year included Jazz Pharmaceuticals’ move to acquire GW Pharmaceuticals and its Epidiolex product (the first marijuana-derived drug approved in the US), Horizon Therapeutics’ acquisition of AstraZeneca spin-out Viela Bio, and Sanofi’s purchase of Translate Bio and its mRNA technology platform. Pfizer followed up its deal with Arena Pharmaceuticals and its Phase III inflammatory bowel disease treatment etrasimod with a US$11.6 billion acquisition of Biohaven Therapeutics in Q1 2022. Biohaven’s therapies focus on debilitating neurological and neuropsychiatric diseases.
High valuations ensured that biotech remained essentially a seller’s market in 2021. The drastic correction in biotech stock markets may change this dynamic substantially in 2022. However, in the first quarter, there was no sign of an M&A resurgence in the sector, with only eight deals of US$100 million or more completed, generating just US$4.9 billion. If that trend continues, 2022 would be the lowest M&A value year since 2010; however, the industry’s need to secure access to innovations and the falling valuations of biotechs may converge to reinvigorate dealmaking over the remainder of 2022.
This bar graph US and European strategic alliances based on biobucks for each of the years from 2012 to 2021.
In 2021, there were 283 alliances announced involving US and European biotechs — the total value reached US$152.1 billion. This included 54 alliances valued at over US$1 billion.
While this was a slight decrease from the record 296 alliances for US$161.6 billion recorded in 2020, both years are significant outliers for alliance deals, with the industry clearly embracing the opportunities of non-M&A dealmaking. The EY analysis (see our EY Firepower 2022 report) suggests that the historical ROI for alliances is 33% higher than for M&A, and that since the beginning of 2020, leading biopharma players have deployed 1.5 times more Firepower toward alliances compared with M&A. (The EY report defines Firepower as a company’s capacity to fund transactions based on the strength of its balance sheet. It has multiple inputs: cash and cash equivalents, existing debt and market capitalization.) Moreover, these partnerships offer large companies a way to access new innovations without paying the high prices demanded by inflated valuations in recent years, thereby offsetting the dealmaking risk.
Despite the sharp drop in biotech valuations, alliances continued to play a major role in the first quarter of 2022. The three-month period saw 64 announced alliance deals, valued at total US$48.9 billion; however, only US$2.4 billion (5%) of this value was paid up front, well below the 12% average recorded over the past decade.
This chart shows the leading biobucks alliances for 2021.
The 2021 Roche (Genentech)-Recursion alliance is potentially worth US$12.2 billion, making it the largest biobucks deal of all time (overtaking the 2019 US$9.4 billion alliance between Galapagos and Gilead). Of this total, Roche is investing US$150 million up front and will use the AI-driven Recursion Operating System to advance 40 therapeutic programs in both neurology and cancer indications.
Aside from Recursion, Roche was extremely busy within the alliance space, agreeing to seven further alliances (including three of the year’s top four) worth a potential US$22.2 billion, though only US$410 million was guaranteed up front. Notable alliance partners for Roche included Adaptimmune Therapeutics, focused on allogeneic cell therapies, which signed a deal with the Swiss pharma giant that is worth a potential US$3.3 billion, and Shape Therapeutics, with an AI platform focused on gene therapy, which signed a deal worth up to US$3 billion.
Among the other Big Pharma, leading alliance makers included Eli Lilly, which agreed to 10 alliances for US$11.6 billion in biobucks, with US$440 million guaranteed up front; Novartis, with six alliances for US$10 billion and US$950 million up front; Takeda with 10 alliances for US$9 billion and US$396 million up front; and GlaxoSmithKline with five alliances for US$6.4 billion and US$1.2 billion up front. More recently, Sanofi announced in the first quarter of 2022 two deals that would rank among the largest biobucks alliances yet seen: a US$6.2 billion deal with IGM Biosciences, a developer of engineered antibodies, and a US$5.3 billion deal with AI drug discovery company Exscientia.
This bar graph shows US and European strategic alliances based on up-front payments for each of the years from 2012 to 2021.
While 2020 was remarkable for up-front payments, with alliances signed that guaranteed US$19 billion up front, 2021 saw that number fall to US$9.7 billion — just 6% of the total potential value, the second-lowest in a decade and well behind the 9% annual average seen over the previous 10 years.
In 2020, there were 38 deals with more than US$100 million paid up front, but 2021 saw only 30, with the average up-front payment dropping by US$30 million compared with the previous year.
In short, biopharma companies in 2021 prioritized smaller alliances with lower up-front payments. Early data for 2022 suggests this trend will continue: The first quarter of the year saw US$3.3 billion of up-front capital committed to alliances, in line with 2021, but well below the levels seen in 2019 and 2020.
