Look for renewed investment driven by lower interest rates in the new year, and a continued focus on late-stage assets, oncology and reaping the benefits of AI.
This year’s J.P. Morgan Healthcare Conference, set to begin Jan. 13 in San Francisco, will see many prognostications from biotech and pharma industry leaders about that 2025 will bring. As the chief growth officer at Advarra, a company that works with multiple partners to accelerate clinical research, I have a broad window onto industry trends. Here are some developments I see as likely in 2025.
After a prolonged downturn following the COVID financial bubble between 2020 and 2022, exit action returned in early 2024. M&As increasing by more than 100% in Q1 compared to Q1 2023, according to a report from Leerink Partners. IPOs too seemed to be rebounding as five companies announced IPOs just in the first few weeks of January.
The Federal Reserve’s decision to cut interest rates throughout 2024 also fueled optimism, suggesting the sector is rebounding after a challenging few years.
When rates come down, investment in startups suddenly becomes more appealing, and investors may be more inclined to open their wallets. The Fed made its third and final interest rate cut of 2024 in December. The Fed Funds rate hit a 23 year high of 5.50% in 2023 and as of the end of 2024 was 4.33%.
In private financing, more than 50 companies announced $100 million-plus in private equity financing rounds in 2024. According to UBS Investment Bank, biotech follow-on issuance activity was up 64% in 2024 compared with 2023. And overall volume has surpassed five of the last six years’ totals. While this year did not yet bring the sector back to pre-pandemic levels of investment, I predict we may reach that milestone in 2025, as activity continues to increase.
Another important factor is the incoming Trump administration, which will likely be more open to M&As than the Biden administration has been, with its aggressive stance ultimately pausing or blocking proposed deals.
However, given the continued struggles of early-stage biotech companies, the separation of “have” and “have not” companies will become more pronounced in 2025 as companies with stronger data and de-risked programs will have access to lower-cost capital and become attractive M&A targets. Big Pharma budget and pipeline reprioritization will continue in 2025, driving companies to focus on late-stage clinical/commercial demand over preclinical starts and bookings.
Therapeutic Areas to Watch in 2025
After a challenging first half of 2024, the number of clinical trials is beginning to increase, and Advarra expects ~2% growth through 2027. There are a few therapeutic areas that will continue to garner the majority of investment dollars, including oncology, which has a distinct lead over all other areas.
The pipeline will continue to grow, particularly in immuno-oncology and cell and gene therapy. But as incredible as these modalities are, so are the costs of an oncology clinical trial. Critical questions remain around reimbursement of such multimillion-dollar therapies. Even in risk-based reimbursement models, there are still questions about who will pay for it, which may hold back the commercial success of cell and gene therapies despite their continued impressive therapeutic successes.
Another area within oncology that is seeing investment is radiopharmaceuticals, where large pharmaceutical companies have spent $15 billion on acquisitions over the past 10 years. Venture capital firms have invested another $1.5 billion. Novartis has set the stage in this space, with sales of radiopharmaceutical Lutathera climbing more than 13% in the first quarter of 2024 to $169 million. As more pharmaceutical companies buy in, they will have to navigate a complex area with special logistical, shipping, storage and handling requirements that demand new infrastructure.
Infectious diseases remained second only to oncology in 2024, but the number of clinical trials in this area continued to decline, narrowing its lead over third-place central nervous system (CNS) disorders. With the renewed boom in neurology and recent success in obesity drugs, 2025 may see a toss-up between CNS and metabolic/endocrinology to snatch away the second position from infectious diseases. Certainly, the success of GLP-1 receptor agonists for obesity will continue in 2025.
AI’s Turbo-Boost?
Any life sciences executive who does not seriously evaluate uses of AI may be impeding their company’s long-term growth potential. Currently, the biggest benefits of AI are being realized in drug discovery and commercialization. AI can analyze mountains of data in minutes and, on the commercial side, dramatically improve targeting.
Some life sciences companies are leveraging AI it to make incremental improvements in patient recruitment and related activities, but it is not yet bending the cost curve in clinical research, which accounts for the bulk of drug development expense. In the new year, we can expect continued use of AI in many areas across the drug discovery, development and commercialization process.
The life sciences industry has had a rocky five years, punctuated by a global pandemic and political upheaval. Now, it seems the ship is righting itself, the clouds are starting to part, and—dare I say it—the sun is showing itself once again.
Bryan Spielman is the chief growth officer at Advarra and is responsible for driving Advarra’s corporate strategy, mergers and acquisitions, strategic partnerships and corporate communications. He has over 25 years of business development and corporate strategy experience from leading technology companies including those with a focus on life sciences.
