US FDA Approvals Bounce Back In 2023, Sparking Hopes of a Biotech Recovery
The surge in U.S. Food and Drug Administration (FDA) approvals in 2023 has ignited optimism within the biotech industry, signaling a potential recovery. The approval of nearly 50% more novel drugs compared to the previous year has brought the FDA’s pace in line with historical levels. Analysts and investors view this improvement as a catalyst for increased investment in biotech firms.
In 2023, the FDA greenlit 55 innovative therapies containing active ingredients or molecules not previously approved, a notable increase from 37 in 2022 and 51 in 2021. Historical data indicates that the FDA typically approves around 45-50 new drugs annually, reaching a peak of 59 in 2018.
High-profile therapies, including Eli Lilly’s obesity drug Zepbound and Eisai and Biogen’s Alzheimer’s treatment Leqembi, were among the FDA’s approvals. Additionally, the agency granted approval to five gene therapies, including a groundbreaking sickle cell disease treatment developed by Vertex Pharmaceuticals and CRISPR Therapeutics, utilizing innovative gene-editing technology.
John Stanford, the executive director of Incubate, a Washington-based group of life sciences investors, expressed enthusiasm about the rise in FDA approvals, particularly highlighting the advancements in gene editing technology. He anticipates a promising future beyond 2024, emphasizing the potential of scientists to achieve more in drug development.
The FDA, in response to the surge in approvals, stated that the number of novel drugs approved varies annually and may be influenced by factors such as the complexity of new drugs in development and advancements in scientific understanding of diseases.
Analysts believe that the decline in FDA approvals in 2022 may have been influenced by the COVID-19 pandemic. The pandemic forced the FDA to transition to a remote workforce, causing disruptions, delayed inspections, and issues in drug reviews. With approvals returning to peak levels in 2023, it is suggested that workflow disruptions and communication challenges with developers have improved.
Despite the positive trend in FDA approvals, investment in biotech companies witnessed a decline over the past two years. The number of initial public offerings (IPOs) dropped significantly from 108 in 2021 to 18 each in 2022 and 2023. Biotech-focused funds experienced a substantial capital outflow of $15.8 billion in 2023, the highest since 1992, according to Piper Sandler.
The decline in investment is attributed to the market being selective in supporting companies accessing capital in 2023. William Blair analysts noted that companies developing GLP-1 weight-loss treatments, similar to popular drugs like Novo Nordisk’s Wegovy and Lilly’s Zepbound, had better access to the IPO market.
Industry analysts identify lingering investor concerns about high interest rates and government scrutiny of drugmakers as potential obstacles to a full funding recovery. While conditions are expected to improve, some investors may remain cautious due to increased oversight of deals in the sector, the government’s drug price negotiation plans, and the potential threat of the Biden administration seizing patents of medicines developed with government funding if deemed too expensive.
