It’s been a record year so far for biotech bankruptcies. As of October, 28 biotech companies have gone bust compared to 20 last year and just nine in 2021.
A number of factors have contributed to the harsh environment for biotechs, according to Daniel Chancellor, director of thought leadership at Norstella’s Citeline. One, of course, is funding.
“The funding environment for biotechs remains a challenge, with a combination of suppressed valuations continuing through 2023 and lower deal-making activity,” he said via email. “At a global level, biotechs are on track to raise $75 billion during 2023, which although higher than 2022, is around 50% of the peak from the pandemic.”
That difficult landscape can be especially tough for biotechs that aren’t making revenue yet and need to “manage cash burn,” he said. When that’s the case, these companies need to “seek strategic alternatives such as partnering assets externally, trimming pipelines and, in the most extreme case, file for bankruptcy to return cash to shareholders.”
“The number of partnering deals between pharma and biotech is down in 2023, despite the need to raise capital.”
Director, thought leadership, Norstella’s Citeline
Another reason for the rise in bankruptcies is that partnering is down, too.
“In this environment, investors may hope that pharma companies become more acquisitive, although this has not yet transpired,” Chancellor said. “The number of partnering deals between pharma and biotech is also down in 2023, despite the need to raise capital.”
Here are three bankruptcies from this year that illustrate the challenges companies are facing.
The company: Sorrento’s clinical- and commercial-stage portfolio was built around new therapies to treat cancer, pain, autoimmune disease and COVID-19. In early 2020, Sorrento’s board unanimously rejected a $1 billion offer from an unnamed private equity firm, saying at the time that the deal “significantly undervalues the company and is not in the best interest of the shareholders.”
What went wrong: Sorrento’s February 2023 bankruptcy filing came in the wake of ongoing legal troubles. The company alleged in its SEC filing that Patrick Soon-Shiong and his immunotherapy biotech NantCell acquired Sorrento’s cancer drug, Cynviloq, “for the purpose of halting its progression to the market.” Sorrento said. NantCell didn’t follow through on the promised deal, but a court in December 2022 ruled in favor of NantCell, saying that Sorrento owed more than $172 million. In February, another court agreed, and although Sorrento didn’t have to pay the full amount right away, the ruling left Sorrento immediately on the hook for $50 million. The bankruptcy filing came just days later because Sorrento “believed that NantCell and NANTibody, in an attempt to satisfy the unstayed $50 million portion of the Nant Award, would imminently take steps to levy [Sorrento’s] assets” and disrupt its business and drug development.
9 Meters Biopharma
The company: 9 Meters Biopharma was a clinical-stage company focused on rare digestive diseases. Its development efforts were focused on vurolenatide, a GLP-1 agonist for short bowel syndrome, as well as the monoclonal antibody NM-136 for obesity disorders.
What went wrong: Despite the blockbuster status of the GLP-1 inhibitors Ozempic and Wegovy, 9 Meters Biopharma’s GLP-1 agonist didn’t fare as well in clinical trials. Although the company said in November 2022 it was planning a phase 3 clinical trial of vurolenatide in adults with short bowel syndrome, it amended those plans just six months later based on feedback from the FDA, as well as industry “thought leaders and investors.” Instead, the company said vurolenatide needed an additional phase 2 trial. It also announced the resignation of its president and CEO at that time.
Less than two months later, 9 Meters Biopharma filed for bankruptcy and said in the filing that it was ceasing operations.
The company: Novan’s commercial portfolio was focused on medical dermatology products, including berdazimer gel for the treatment of the viral skin infection molluscum contagiosum.
What went wrong: Despite having five commercial-stage products, the company struggled financially, and said it faced “serious challenges achieving profitability with our commercial assets in the current economic environment.”
Novan slashed its workforce by half in May and floated the possible sale or out-licensing of its commercial products. The company vowed to focus its cash and resources on getting berdazimer gel approved and seemed well on its way, with a PDUFA goal date of Jan. 5, 2024. Not quite two months after announcing its restructuring, Novan filed for bankruptcy and said it planned to sell its assets.
Novan and its wholly owned subsidiary, EPI Health, entered into a stalking horse asset purchase agreement with Ligand Pharmaceuticals. As of July, Novan said it planned to “continue to work with the FDA to progress towards potential approval of berdazimer gel” even as the bankruptcy case progresses.