A slump in biotech likely means closures, layoffs across Mass., analysts say

Investors are pulling back from biotech.

The industry became an investment darling shortly after the pandemic, drawing a record amount of venture capital dollars in 2021. But things have changed in the last few months.

"It's painful," said Barbara Ryan, senior advisor at Ernst & Young. "There are companies that will not survive this because they'll run out of cash."

With higher inflation and interest rates, some investors are looking to put their money elsewhere — perhaps in investments with steadier, more guaranteed returns.

Biotech also drew a lot of new investors in the last two years. Ryan said it's likely some of them didn't fully appreciate the patience and risk-tolerance required in an industry where the vast majority of drugs fail. On average, it also takes more than a decade to bring a new drug to market.

The XBI, which is often used to measure the stock market value of small and medium sized biotech companies, is trading at around half of its value compared to last year.

Greater Boston is home to more than 1,700 biotech companies. It's still unclear how many of them will be affected by declining stock values.

"This is not something that is new to the biotechnology industry," said Joe Boncore, CEO of the Massachusetts Biotech Council. "We're still on an upward trajectory."

Boncore believes this downturn in the market is more of a correction after reaching an all-time high in 2021. Even if some companies do shut down operations, he said he doesn't expect persistent unemployment in the industry.

"If anything, we had an employee shortage over the last three years," Boncore said. "And now, with some companies closing, you'll see an evolution of people going to other companies."

Boncore said he expects plans to build millions of square feet of new lab space across Massachusetts to continue.

At least in the short term, this year's downturn may force biotech companies to become more conservative in their spending, Ryan said.

"This is the longest and steepest bear market in the biotech industry," she said.

Ryan is still bullish about the quality of research coming out of local biotech, particularly when it comes to things like gene editing.

"We are in an innovation renaissance," Ryan said. "There are new technologies that probably are going to monopolize revenues for the industry ten years from now that 15, 20 years ago seemed like science fiction."