Despite setbacks, investors remain bullish on CT’s bioscience sector, but changes in Washington raise uncertainty

The state’s bioscience sector is a lot like that box of chocolates in the film “Forrest Gump” — you never know what you’re going to get.

Several state-based companies have recently suffered significant financial woes:

• At least four — BioSig Technologies, BioXcel Therapeutics, Portage Biotech and Quantum-Si — have faced delisting by the Nasdaq stock exchange in the past year.
• Stamford-based Cara Therapeutics announced in August that, due to serious financial issues, it may consider dissolving. It also reduced its workforce by 91%. In December, Cara announced plans to merge with Houston-based Tvardi Therapeutics.
• In addition, four Connecticut-based bioscience companies that went public through special-purpose acquisition company (SPAC) IPOs in 2020-21 — including Quantum-Si; Sema4, which later renamed itself GeneDx; Butterfly Network; and Hyperfine — have all seen their stock prices plummet at least 80% since then.

Other state companies, though, are much better off:

• In August, New Haven’s Halda Therapeutics secured $126 million in a series B financing round.
• In October, New Haven-based Modifi Biosciences, which is developing cancer therapies, was acquired by Merck & Co. in a $1.3 billion deal.
• In November, Branford-based EvolveImmune Therapeutics Inc. signed a collaboration and option-to-license agreement with Illinois-based Abbvie that will provide it with $65 million up front, and the potential for up to $1.4 billion in additional funding.
• In December, Nuritas, an Ireland-based biotechnology firm with its U.S. headquarters in New Haven, announced a $42 million series C funding round.
• In January, Normunity Inc. closed a $75 million series B financing round, while Nema Health announced a $14.5 million series A funding round. Both are located in New Haven.

“Taking this all in context, it’s the nature of the beast in drug development that only one out of 10 will make it,” said Jodie Gillon, president and CEO of BioCT, a nonprofit that advocates for the state’s bioscience industry.

Image

Jodie Gillon

Gillon said companies developing therapies know from the start that “it’s going to take 12 years and over a billion dollars to bring a drug to market.”

In fact, according to the National Institutes of Health (NIH), the mean cost for drug development is between $314 million and $2.8 billion.

Dr. Stephen Bloch — founder and CEO of EvolveImmune, which is developing cancer biotherapeutics — said bioscience is a “very volatile” industry.

“It’s up and down. It’s a high-risk proposition, very capital-intensive, science and biology driven,” Bloch said. “We’re trying to create new therapies for patients. It requires very skilled people over a long period of time, a lot of capital and a lot of regulatory oversight. There are just a lot of things that can happen along the way.”

So, how do you judge the success of the bioscience industry in Connecticut? Hartford Business Journal spoke with several experts who invest in, work in or support the sector to try to understand how it’s performing and what the outlook is for the future.

More efficient

If you gauge the state’s bioscience industry strictly by how many people it employs, you might think things aren’t so great.

According to the state Department of Labor (DOL), bioscience firms in 2001 employed 29,407 people in Connecticut. However, as of the third quarter of 2024, that was down to 25,477, a 13.4% decrease.

Comparing that most recent figure, though, with 2017 — when the sector hit a low of 21,689 jobs — shows that employment has risen 17% over the past seven years.

Image

Paul Pescatello, senior counsel and executive director of the Connecticut Business & Industry Association’s Connecticut Bioscience Growth Council, says the job numbers are misleading.

Image

Paul Pescatello

“There’s a really positive thing in that number,” Pescatello said, “in that companies have become so much more productive and efficient at what they do, it takes a lot fewer people now.”

That opinion is shared by John Bourdeaux, president and CEO of AdvanceCT, the state’s nonprofit business support and recruitment arm. He says comparing staffing levels from 25 years ago with today fails to account for how technology has progressed. He cited artificial intelligence as an example.

Image

John Bourdeaux

“The companies that are … raising money today are enabled by this next-generation technology in a way that just doesn’t need the same number of people,” he said.

Pescatello added that the number of companies in the sector, combined with the number of related suppliers and support businesses, is a more telling figure than the number of people the sector employs.

According to DOL data, there were 1,744 biotech companies in the state at the end of the third quarter of last year — more than double the 817 companies in 2002.

There is yet another reason for the reduced employment numbers: outsourcing.

Kat Kayser-Bricker, Halda Therapeutics’ chief science officer, says many bioscience firms often choose to use consultants.

“For example, we’re moving into our clinical trials, and we have a consulting chief medical officer because we don’t want to hire a CMO until we start to see some readouts on the trials,” she said. “You want to make sure that it’s worth bringing somebody on, that you have the data to support that.”

Halda, which is developing a novel class of therapies for prostate and breast cancer, currently employs 35 people, she added.

It’s also worth noting that the average annual pay in the industry has grown 82.5% over the past two decades, rising from $75,990 in 2001 to $138,650 in 2023, the latest year for which full-year data is available, according to the labor department.

Difficult market

Beyond the number of businesses and employees, though, is whether venture capitalists (VCs) and others are still investing in the state’s biotech companies.

Tim Shannon is a general partner with Canaan Partners, a California-based, early-stage venture capital firm with an office in Stamford. He’s not just an investor; he’s a former pulmonary and critical care physician and was president and CEO of CuraGen, a publicly traded biopharmaceutical company focused on oncology.

Image

Tim Shannon

The past decade “was a huge boom time for biotech. It outperformed every other sector,” Shannon said. “Now we’re sort of on the other side of that, where companies that shouldn’t have survived are failing, but some companies that in other times would not have failed … are struggling to survive.”

Shannon says Connecticut has had its share of successful bioscience firms. He cited rare drugmaker Alexion Pharmaceuticals, now owned by AstraZeneca, as one example. While AstraZeneca is based in the United Kingdom, it has not relocated Alexion and, in fact, is expanding its offices in New Haven.

He also cited New Haven-based Arvinas Inc., which is developing therapies for prostate and breast cancer and announced a $350 million fundraise at the end of 2023.

“That’s a company that’s recognized around the world as an absolute innovator in what they do,” Shannon said.

Still, when looking at the sector beyond Connecticut from a “macro” level, “the biotech investor markets have been difficult for a while now,” he said.

He noted that the XBI exchange-traded fund, built to track the S&P Biotechnology Select Industry Index, is “down like 60% or 70% since February 2021. So, the public markets are down, and that creates a drag on the private markets as well.”

It’s also a drag for startup companies seeking capital, which “has created a problem with funding of a lot of the biotech companies that are in existence, but don’t have products that need new investor capital,” he said.

Shannon added that all markets go through cycles and biotech is no different. “And this is, I would say, a relatively down time.”

‘Really bullish’

Matthew Storeygard is more optimistic. The senior managing director of investments and bio team director for Connecticut Innovations (CI), the state’s venture capital investment arm, says his organization believes the state bioscience sector is a strong investment opportunity.

Image

Matthew Storeygard

“My sense was that in 2020 to early 2022, there was a lot of inflow of money and sort of inflated valuations,” Storeygard said. “There were a lot of VC rounds. … And then it sort of corrected over the last two years. But I would say over the last year, especially, we’re really bullish.”

He added that CI’s portfolio of investments in healthcare-related ventures is approximately $100 million, while investments in bioscience companies “is probably a little less than half” of that.

CBIA’s Pescatello is also bullish on the sector, saying, “We’ve really hit our stride over the last couple of years in terms of new companies being born out of academic labs, and otherwise getting funding and starting in Connecticut.”

Tim Miller, vice president of business development and life sciences for AdvanceCT, says he believes the “venture capital focus on Connecticut is stronger than ever.”

“I’m thinking of organizations like Yale Ventures that put together its pitch fest,” Miller said. “I’m thinking of VC groups that I know of that are based in Massachusetts, but they have some local (investors) in New Haven that are just focused on Connecticut deal flow.”

Why here?

That last point raises another question. Why would companies choose New Haven, or Connecticut, when other locations — specifically Cambridge and Boston in Massachusetts, and San Francisco — are better known for supporting bioscience companies?

John Houston, chairman, CEO and president of Arvinas Inc., cited a couple of reasons for locating in New Haven.

Office and laboratory space in Boston, Cambridge or San Francisco is prohibitively more expensive than in Connecticut, he said, and that cost “comes right off of the money you want to spend on research.”

“So,” Houston added, “you can grow your business quicker here.”

AdvanceCT’s Miller said New Haven also offers a geographic advantage, placing companies close to investors in both New York and Boston.

Another selling point, he said, is “that you don’t have to look very far in Connecticut to find a room full of people that really care about the life sciences industry.”

Miller noted that “every BioCT event is sold out with a wait list,” and there are events every month that allow people in the industry to connect and collaborate.

Other advantages include being close to Yale University and Yale Ventures, which helps faculty convert research into commercial ventures, as well as the University of Connecticut and other colleges in the state.

Storeygard noted that Yale annually invests about $700 million in research.

‘Uncertainty is a risk’

Of course, recent developments at the federal level have created a cloud of uncertainty over the bioscience industry nationwide.

On Feb. 7, the NIH announced plans to drastically cut funding for “indirect costs” related to research, reducing what institutions can recover for such costs to a maximum of 15%, well below the more than 60% level some were recovering.

That, combined with the confirmation of noted vaccine skeptic Robert Kennedy Jr. as secretary of Health and Human Services, has investors spooked.

“I’ll say this in a nonpartisan way,” Shannon said. “So, we talked about the risks inherent in what we do, and people not wanting other risks to enter the equation. The uncertainty is a risk.”

No matter what happens, he said, the actions of the Trump administration have “introduced uncertainty in terms of what is going to happen, and it will keep people on the sidelines until that becomes clear — meaning it becomes another reason for people not to invest.”