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For biotech companies, 2024 marks another moment of "the water flows, and the flowers wither without sentiment, sending the east wind over the Chu city," a time for reckoning. Similar to 2023, many biotech companies will close their doors in 2024, with once-promising enterprises having to gradually shut down under the pressures of cash shortages and failed R&D. These closures have sparked reflection on the future of biotech innovation.
From the data, 27 major biotech companies closed or announced plans to close in 2023, nearly four times the number of closures in 2022 (7 companies). The numbers for 2024 have slightly decreased, but 22 companies have perished, with 17 having already shut down and the remaining 5 seemingly unable to recover.
Among the biotech companies that closed in 2024, Tracon Pharmaceuticals' experience is particularly poignant.
Tracon Pharmaceuticals decided to cease operations at the end of July 2024, just after receiving authorization from China for an injectable immune checkpoint inhibitor. However, the company failed in a pivotal trial for a rare cancer therapy soon afterward.
In December 2019, Tracon reached an agreement with Chinese developers 3D Medicines and Alphamab Oncology to acquire the North American rights to envafolimab. Envafolimab was approved in China in 2021 for the treatment of advanced microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) solid tumors, a pan-tumor therapy. Given the approvals of PD-1/L1 inhibitors like Merck's Keytruda in the U.S., Tracon targeted soft tissue sarcoma (unclassified pleomorphic sarcoma or myxofibrosarcoma) as the initial indication for envafolimab. However, the overall response rate in clinical trials was not significantly better than Novartis' Votrient, with a 4.9% response rate, falling short of Tracon's expected 11%.
Tracon had hoped that envafolimab would be the first subcutaneous version of a PD-L1 inhibitor (Roche’s Tecentriq Hybreza, approved on September 12, 2024, became the first PD-L1 subcutaneous drug). Unfortunately, envafolimab's clinical failure led to the company's closure. Despite efforts to reduce cash consumption post-failure, these emergency measures were not enough. The San Diego-based company announced the cessation of operations on July 31, 2024. The company’s fall seemed sudden, leaving no opportunity for a comeback.
Tracon’s demise is a tragic reminder of the precarious fate of biotech companies in the stormy sea of drug development—where success can elevate them to the heavens, and failure can cause immediate collapse. For a company that only weeks ago was pursuing the first subcutaneous PD-L1 therapy in the U.S., failure came swiftly and left no chance for recovery.
Was Tracon's failure due to choosing the wrong drug, the wrong indication, or cash flow constraints? It is certain that many biotech companies have little margin for error. "One wrong step and the whole game is lost" is an apt description of their fate.
Tracon is not the only company to experience a collapse due to key clinical trial failures.
Massachusetts-based Synlogic Therapeutics saw its main pipeline product, the phenylketonuria (PKU) drug SYNB1934, fail in a pivotal phase 3 trial in early 2024. On February 9, 2024, Synlogic announced it would cease operations and lay off over 90% of its workforce. The remaining employees would assist in "strategic review" efforts to maximize shareholder returns.
Synlogic had launched the global Synpheny-3 trial in June 2023, involving 150 PKU patients. PKU is a hereditary metabolic disorder caused by a deficiency in the enzyme phenylalanine hydroxylase (PAH), leading to the inability to metabolize phenylalanine. Without treatment, the accumulation of phenylalanine can cause severe health problems, including intellectual delays and behavioral issues.
At the beginning of January 2024, Synlogic's CEO, Aoife Brennan, expressed optimism about the Synpheny-3 trial. However, the data monitoring committee's review of preliminary data quickly dampened this optimism, suggesting that the trial was unlikely to meet its primary endpoint. Brennan made the decision to terminate the trial. While Synlogic has not officially announced its closure, the company's future seems bleak.
In 2024, several biotech companies have already filed for bankruptcy. While filing for bankruptcy does not necessarily mean the company will cease operations, it usually signals the company's impending fate.
Cash plays a critical role in the fate of biotech companies.
The operations and R&D of biotech companies require significant funding at every stage, from initial research to clinical trials and market promotion. Without enough funding, many projects may remain incomplete, leading to company shutdowns that ultimately influence the company’s strategic direction and decisions.
Biotech companies often rely on venture capital and capital markets for financing, and changes in the financing environment—such as market sentiment, economic conditions, and regulatory policies—can impact the company's ability to raise funds. If financing conditions are stringent, many startups face the risk of bankruptcy.
Walking Fish Therapeutics, a B-cell therapy company, filed for bankruptcy due to a cash flow problem after a major investor withdrew from its Series B funding round. The high production costs of cell therapies and related clinical trial expenses became insurmountable obstacles for the company.
Post-COVID-19, investors have become more selective, favoring companies with late-stage clinical data. This has significantly compressed the survival space for areas without clinical data or proven scientific support.
For early-stage companies like Catamaran Bio, the financing environment for cell therapy remains extremely challenging. The time and resources required to achieve meaningful clinical results have prevented them from progressing as planned. After their funding chain broke, they had no choice but to file for bankruptcy.
In 2024, several biotech companies decided to cease operations, typically choosing to temporarily or permanently stop their business activities. When ceasing operations, companies do not necessarily file for bankruptcy or face large debts. They may choose to exit the market in an orderly manner by liquidating inventory, laying off employees, and repaying debts.
Ceasing operations does not involve legal procedures. The company can decide when to end its operations and may retain the possibility of restarting in the future.
Bankruptcy is a legal process where a company applies to the court for protection when it is unable to repay its debts. The goal of bankruptcy proceedings is to protect creditors and ensure a fair distribution of remaining assets when the debtor is unable to settle debts. A company may undergo restructuring or liquidation as per bankruptcy law. Restructuring provides the company an opportunity to resume operations, while liquidation means selling off assets and closing the company.
Overall, ceasing operations is more of a business decision, while filing for bankruptcy is a legal process, often a last resort when the company cannot repay its debts.
Compared to biopharmaceutical companies, the biotech field seems inherently prone to "life and death" depending on the macro environment, though there are also instances where companies are eventually acquired by larger firms, with some projects making it to market.
The biotech industry sees companies continuously closing and new startups emerging, almost like a constant cycle of rebirth. This phenomenon seems to correspond with the thought, “All things grow together, and I watch them return. All things are many, and each returns to its root."
[5] Masson, G. "The 2024 Biotech Graveyard." Fierce Biotech. 31. 10. 2024.
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