Biopharma Bankruptcies Remain at Historic Highs, Reflecting Ongoing Industry Challenges

The pharmaceutical industry continues to grapple with a surge in bankruptcies, as companies face persistent fundraising difficulties and economic uncertainties. The trend, which began in 2023, shows little sign of abating, with experts predicting continued financial pressure on both public and private biotech firms throughout the year.

Record-Breaking Bankruptcy Filings

2023 marked a decade-high for biopharma bankruptcies, with 14 companies filing for Chapter 11 protection. The trend continued into 2024, with 13 firms going under in the same manner. This represents a significant increase from previous years, as prior to 2023, the highest number of biopharma bankruptcies since 2010 was seven, recorded in 2019.

Cristine Schwarzman, a partner in Ropes & Gray's business restructuring practice, notes that these figures may only represent "the tip of the iceberg." Many biotech companies opt for alternative shutdown methods, such as ABC proceedings or dissolution, which are less expensive and quicker but do not offer the same benefits as bankruptcy proceedings.

Factors Driving the Bankruptcy Surge

Several key factors contribute to the current wave of bankruptcies:

1. Fundraising challenges: Rising interest rates have strained access to capital, making it difficult for companies to secure necessary funding.
2. Economic uncertainty: The current political environment has led to more cautious investing practices.
3. Cool public markets: Biotech companies are finding it increasingly difficult to go public or raise funds through public offerings.
4. Selective private investors: Venture capitalists are being more discerning in their investment choices.
5. Reduced Big Pharma engagement: Large pharmaceutical companies have been less active in deal-making and have cut back on R&D expenditures.

David McIntosh, a partner at Ropes & Gray in the life sciences and intellectual property transactions practice, explains that the pandemic boom led to an influx of funds across the life sciences sector. This resulted in many biotech companies taking on more debt financing than usual, which has now become unsustainable in the current economic climate.

Notable Bankruptcies and Asset Sales

Several high-profile bankruptcies in 2024 highlight the challenges facing the industry:

1. Eiger BioPharmaceuticals: This metabolic disease biotech filed for bankruptcy following a Phase III trial failure for its chronic hepatitis delta treatment. Its assets were subsequently sold, with Amylyx Pharmaceuticals acquiring the glucagon-like peptide-1 receptor antagonist avexitide for $35 million.

2. Gritstone bio: The vaccines-focused biotech filed for bankruptcy in October 2024, despite showing promise in its Phase II results for the Granite program. The company's assets were ultimately auctioned off for $21.2 million.

3. Athersys: This cell therapy biotech, which had been developing its MultiStem off-the-shelf cell therapy since 1994, sold its assets to Healios for approximately $2 million in January 2024 following an unsuccessful Phase III trial in stroke.

4. Omega Therapeutics: As of January 29, 2025, this Flagship Pioneering spinout was facing imminent bankruptcy proceedings, with plans to wind down operations and potentially sell its assets to Pioneering Medicines, an affiliate of Flagship Pioneering.

These cases illustrate a common pattern in biotech bankruptcies, where intellectual property and assets are often acquired by other companies at reduced valuations, potentially giving promising drugs a second chance at development.

As the industry continues to navigate these challenging times, experts warn that the trend of increased bankruptcies is likely to persist. McIntosh concludes, "As long as the public markets disfavor biotech companies, and private investors shy away from 'riskier' early-stage investments, the trend will continue."