As a result of these trends, companies have shifted from a growth-at-all-costs approach toward controlling opex and are striving for profitability. In recent years, when profitability was not a major focus, emerging companies focused on scaling topline revenues and could preserve their cash runway — with ample access to fundraising on the promise of disruptive technologies.
Now, financing is more challenging and expensive, market sentiment has shifted, and investors want proof that a business can scale toward sustainable operations. As a result, leading players are touting significant strides toward profitability and have repeatedly touted profitability and expected timing as key goals to investors in quarterly earnings calls.
One example is Exact Sciences, which has advanced its timeline to profitability and now expects to reach this milestone by the end of 2023. For players further away from profitability, however, restructuring and layoffs have increasingly been used as tools to trim opex and maximize their cash runway, given reduced access to financing. This shift has resulted in a broad set of companies across the diagnostics and research tools space (e.g., Adaptive Biotech, Personalis, Sema4, NanoString, TwinStrand, Illumina, Invitae, 10X Genomics and many others) reducing their workforce.
While the development of disruptive research tools and diagnostic technologies will continue, the financing trajectory and growth rate of small, early-stage private companies may differ significantly compared with the past five years because of these near-term economic headwinds.
Accelerating demand driven by continued growth in precision medicine and biotherapeutics
The biopharmaceutical R&D pipeline continues to scale, capture investment and produce innovative medicines that drive demand for advanced research tools.
The success of molecular testing and corresponding maturation of precision oncology is beginning to drive precision medicine into new therapeutic areas. Molecular diagnostics (e.g., clinical next-generation sequencing (NGS)) have dramatically changed how oncology patients are managed. Molecular testing itself has also evolved from single tests looking at small panels of mutations to inform therapy selection for late-stage patients to a series of longitudinal diagnostics that inform management from presymptomatic (screening) through to initial diagnosis (prognosis and risk assessment), the adjuvant setting (testing for minimal residual disease), and monitoring for recurrence.
In parallel, molecularly defined patient subgroups have unlocked pan-cancer approvals (e.g., Viktravi for patients with NTRK mutations, regardless of tissue of origin) and challenged tumor site-specific treatment paradigms. With the growing evidence of the value of precision medicine in terms of total cost of care and patient outcomes, precision medicine principles are being applied in disease areas beyond oncology, including epilepsy, rheumatoid arthritis and depression, and will require entirely new molecular tests and predictive signatures to inform optimal patient management in these large, chronic indications.
Approvals of novel, disease-modifying therapies underscore the need for advanced diagnostics to effectively manage chronic diseases of large populations
The recent approvals of Biogen’s Aduhelm (aducanumab) and Eisai/Biogen’s Leqembi (lecanemab-irmb) gave patients the first potential therapies that may treat the root cause of neurodegeneration observed in Alzheimer’s patients. However, these approvals also underscored the significant need for better tools to identify patients early and stratify subpopulations, both to identify patients most likely to respond to therapy and to identify those who may be at elevated risk of severe adverse events (e.g., amyloid-related imaging abnormalities).
Continued acceleration of advanced modalities (cell, gene and nucleic acid therapies) will require novel bioproduction equipment and analytical tools
Advanced biologic therapies reached several milestones in 2022, with the first wave of CAR-T cell therapies gaining approval for second-line use in hematologic indications, approval of two new gene-modified cell therapies from bluebird bio, the approval of a new viral vector gene therapy (Hemgenix for hemophilia B) from uniQure, and compelling data from the RNA therapeutics pipeline (e.g., Moderna and Merck personalized cancer vaccine met the primary phase 2b efficacy endpoint).
Advanced therapies are beginning to expand beyond the orphan and oncology indications (e.g., near-curative effect of autologous cell therapies in lupus), and 2023 could see around 15 additional advanced therapeutic Food and Drug Administration (FDA) approvals (see Figure 2). To support development and commercialization of advanced therapies in larger patient populations, advances in tools and bioprocessing will need to significantly bend the cost curve of these complex and expensive-to-manufacture drugs.
Similarly, novel tools will be required to define and measure critical quality attributes of advanced biotherapeutics for quality control and release testing.
