Investors focus on firms with more advanced products
2022.06.27 15:41
FILE PHOTO: Pharmaceutical tablets and capsules are arranged in the shape of a U.S. dollar sign on a table in this picture illustration, August 20, 2014. Budrigannews
(Budrigannews.com) – Biotech investors nursing losses from stock price falls are now focusing on firms which are closer to getting their drugs to market, rather than those at the early stages of development.
This waning risk appetite, six industry insiders told Reuters, follows a blockbuster funding year in a sector which has been rattled by a slump in valuations and a lack of big deals, usually a key attraction for small and mid-cap biotechs.
Interest in biotech companies looking to go public is now primarily focused on those with candidate drugs which are already in clinical trials, fund managers, analysts and biotech industry sources said.
“Investors are becoming a lot more selective and it’s a very challenging time for biotechs to go public,” Avery Spear, a senior data analyst at initial public offering (IPO) research firm Renaissance Capital, said.
Only five of 102 biotech firms that listed last year in the United States are now trading above their debut price.
Meanwhile in the private market, early-stage funding is moving toward companies whose lead experimental drugs have advanced to tests in humans, Jonathan Norris, managing director for Silicon Valley Bank’s healthcare practice, said.
Norris expects public investors to be risk averse until at least the end of 2022, and possibly to the middle of next year.
A record 2021 for biotech funding helped a number of companies, even those without clinical candidates, to go public at soaring valuations.
“Small- and mid-cap biotech were coming at valuations that were incredibly high and so folks that were involved with those have been burned by them,” Lee Brown, global healthcare leader for investment research firm Third Bridge, said.
Last year, there were a record 152 biotech IPOs globally, with companies raising more than $25 billion in total, Refinitiv data shows.
As of June 10, 23 biotechs had gone public globally in 2022, raising $2.3 billion, against 68 in the same period last year.
The Nasdaq Biotechnology index is down 18.6% for the year and nearly a third of the stocks which make up the biotech index are trading at negative enterprise value, Refinitiv data shows.
This means that their equity value and debt, which combined make up their enterprise value, together equal less than the cash they hold, a sign of pessimism about their prospects.
This follows a lack of major healthcare deals, as well as regulatory scrutiny, including a greater antitrust focus on pharmaceutical companies’ mergers and acquisitions as a means to curb drug price rise.
“M&A activity is what gets people excited to be involved in small and mid-cap biotech because they’re hoping for a lottery ticket,” Brown said.
A lack of funding is forcing many smaller drug developers with multiple candidates to reduce or prioritize the candidates they develop.
Analyst Zegbeh Jallah, in a May 27 report by Roth Capital, cited an increasing shift to only funding lower-risk programs and those more likely to drive near-term valuation upside.
In May, bacterial therapy developer BiomX (NYSE:PHGE) said it is reducing its headcount by 50% to further extend capital resources for its clinical trial “in light of the challenges our industry faces”.
Genocea Biosciences (NASDAQ:GNCA), meanwhile, wound down its operations and delisted from the Nasdaq early June, about a month after an unsuccessful search for a buyer for all or part of the cancer immunotherapy developer.
