Biotech Industry Faces Cash Crunch as One-Third of Companies Near Financial Cliff

In a sobering snapshot of the biotech industry's financial health, EY's 2025 Biotech Beyond Borders report reveals that 39% of biotechs assessed in 2024 were set to run out of cash within 12 months. This marks the highest level this financial health metric has reached in at least six years, up from 31% in 2022 and 2023, and just 18% in 2021.

The startling statistic reflects the "really tough funding environment" facing the sector, according to Ashwin Singhania, EY-Parthenon partner/principal of life sciences strategy. Arda Ural, EY Americas life sciences leader, noted, "That number keeps creeping up," highlighting the industry's growing financial vulnerability.

Industry-Wide Cash Constraints and Strategic Responses

The report paints a picture of dwindling financial resilience across the biotech landscape. Over the same period, the share of biotechs with more than five years of cash fell from 24% in 2021 to 18% in 2024. This cash crunch is forcing companies to take drastic measures, including consolidation, reverse mergers, staff layoffs, and portfolio optimization.

Rich Ramko, EY Americas life sciences sector and biotechnology leader, outlined several strategies companies are employing to extend their runway:

1. Rethinking investor engagement
2. Tying funding to clearer milestones
3. Narrowing focus to lead assets
4. Exploring non-dilutive options like royalty deals
5. Increasing reliance on outsourcing

Ural emphasized the need for a fundamental reassessment of capital allocation, stakeholder communication, and portfolio management. "That's how you navigate [the biotech market] volatility," he stated.

Mixed Signals: Growth Amid Contraction

Despite the alarming cash crunch, the 2025 outlook presents a "mixed bag," according to Singhania. On the positive side:

• Biotech saw modest top-line growth in 2024, with industry net revenues up nearly 7% compared to 2023
• R&D expenditures increased by almost 12%, signaling continued faith in scientific innovation
• Early-stage venture capital (VC) deployment reached $15 billion in 2024, up from $12 billion in 2023

However, these gains were not widely distributed across the industry. The number of early-stage VC deals dropped 20% year over year, reflecting a trend of larger checks going to fewer firms. Ramko described it as "a tale of the haves and have-nots."

Signs of strain are mounting across the broader landscape:

• The biotech workforce contracted by about 5% in 2024
• Total financing (venture, IPOs, follow-ons, and debt) dropped nearly 10% from 2023, down to $73 billion
• Q1 2025 saw just $17 billion invested, continuing the downward trend

Navigating the Storm: A Return to Fundamentals

With macroeconomic and policy headwinds still clouding the investment outlook, EY leaders warned that the capital gap is likely to widen. "There's no playbook for what's happening right now," Ural said. "What got us here won't get us [to recovery]."

In response, EY's leadership urged the industry to return to basics:

• Pre-revenue companies should tightly manage resources, cut costs, and demonstrate milestone achievement
• Portfolio optimization will be key through the rest of 2025
• Revenue-generating biotechs must focus on scenario planning around workforce shifts, manufacturing efficiency, and tax-smart supply chains

Financing rounds are increasingly tied to strict milestones, with "investors holding management teams' feet to the fire," according to Ramko. Traunched deals, smaller upfronts, and tighter collaboration terms are becoming the norm.

As the industry grapples with these challenges, executives are increasingly turning to outsourcing and managed services to reduce overhead and maintain lean teams while concentrating resources on value-driving R&D efforts.

Amid such strategic shifts and continued volatility, EY's leaders caution that crystal-ball forecasts will be difficult. "This year is probably one of the toughest to predict," Ural concluded, underscoring the uncertainty facing the biotech sector as it navigates this period of financial turbulence.