The market capitalisation of many small- to mid-cap biotech companies has declined drastically during the spring. This has caused several sector companies to now face a market capitalisation below their cash at hand. The trend was first noticed in the US, but there are several examples on the Nordic stock markets as well.
Small- to mid-cap biotech companies have had a tough time on the stock market in recent months, and the sector was hit exceptionally hard by the generally sour stock market climate. Within the last six months, the Nasdaq Biotechnology Index has fallen by just over 24 per cent, and many shares have plummeted to historically low levels.
Endpoint News recently reported that the investment bank Jefferies had highlighted that 128 small- to mid-cap North American biotech companies are currently traded below cash, which means that their market capitalisation is lower than their cash at hand. The situation is described as historical.
Behind the declining share prices in the biotech sector is of course the known set of macroeconomic events and actions taken by the central banks, but paused clinical studies have also had a negative impact. According to Jeffries’ analysis, investors in the current macro environment are driven towards larger dividend-paying companies, which means that there is less capital left for smaller players.
Share prices tangent to the financial crisis
Analysts have told Endpoints that, since 2007, there have never been more than 45 small- to mid-cap biotech companies traded below cash. A more common mark is around twenty companies. Hence, the current number is not only startling in absolute terms, the fact that 25 per cent of the industry is now estimated to trade below cash means that the sector is at levels comparable to the 2008 – 2009 financial crisis, according to the Jefferies report.
Cancer companies are taking the hardest hit
Bloomberg News has also observed the phenomenon and listed 200 North American biotech companies that trade at a lower market capitalisation than their current cash position. According to their review, small- to mid-cap companies within the cancer space have been hit particularly hard.
Bloomberg spoke to analyst Asthika Goonewardene, who pointed out that 53 per cent of the small to medium-sized biotech companies developing new cancer medicine are now trading below cash. According to him, the companies operating in oncology trade at a median of 0.7 times the company’s cash position, which can be compared to the companies that target other indications, where the corresponding factor is 1.1.
The same pattern is seen in the Nordic region
The stock market turbulence has not only cut valuations of US listed biotech companies. BioStock has identified a handful Nordic companies in the industry that are traded below cash. One of them is the research company Idogen that develops tolerogenic cell therapies for diseases and conditions where the immune system has become the body’s own enemy. At the time of writing, the company’s cash position is just under 39 MSEK, while the market capitalisation is approximately 26 MSEK. In January, Idogen’s share was traded at approximately 1.5 SEK and has since fallen to just over 0.4 SEK.
Another company traded below cash is the research company Saniona, which, in April, announced pausing two clinical studies and reducing the workforce by 30 per cent due to limited financial resources. The market reacted heavily on the news, causing the share to fall to around 2 SEK, compared to around 9 SEK at the turn of the year. The company’s market capitalisation of approximately 223 MSEK is now well below the cash position, which is just under 357 MSEK. Saniona’s major shareholder RA Capital Management reduced its holding in the company by approximately 80 per cent during the spring, while the Swedish National Pension Fund AP4 sold its entire holding in the company.
The Malmö-based pharmaceutical company Cyxone currently has a market capitalisation of approximately 61 MSEK, which is slightly below its cash position of just over 69 MSEK. In April, the company, listed on First North, announced closing down its Covid-19 project to once again prioritise its rheumatoid arthritis programme with Rabeximod. This caused a strong reaction on the stock market.
The fact that a company is traded below its cash position does not necessarily mean that there is an opportunity to invest in the stock, but from a historical perspective it is unusual to see the biotech sector traded this low – both internationally and in Sweden.The content of BioStock’s news and analyses is independent but the work of BioStock is to a certain degree financed by life science companies. The above article concerns a company from which BioStock has received financing.