The survey was conducted by the investment bank Jefferies, where it is convinced that 2024 will be a strong year for the biotechnology sector. The amount of capital raised in January stands in stark contrast to the situation in recent years, where many companies have been forced to cut staff and shelve projects to save money, while others have been forced to close operations completely.
“There has been a noticeable, dramatic improvement in investor sentiment,” he says. Rahul Chaudhary, healthcare manager at Leerink Partners, to Financial Times.
Opportunistic capital rounds
The upswing comes after positive sentiment on the stock market, expectations that the Federal Reserve will soon begin lowering interest rates, and a boom in acquisition activity in the sector. SPDR S&P Biotech ETF (XBI) is a temperature gauge for the sector that has many eyes on it. After the peak quotes in 2021, the fund fell by almost two-thirds, but since the end of October has recovered by about 40 percent on the returning optimism.
More opportunistic capital raisings Jesse Mark, head of equities at Jefferies, says the most notable change is the increase in the amount of “opportunistic” capital raisings that are not directly linked to any clear milestones in development.
“During two challenging years, most companies relied on catalysts to raise capital,” says Mark, adding: “Now, broader investor interest has opened the door for opportunistic issuances.”
Large backlog of companies wanting to go public
The majority of the capital raised – USD 5,6 billion to be exact – was raised by listed companies. At the same time, IPOs have also gained momentum, and the strong performance is expected to encourage a continuation of the trend.
“There is a large backlog of biotech companies that have refrained from going public in recent years that are sharpening their pens again,” says Yasin Keshvargar, capital markets partner at the law firm Davis Polk.
The Kyverna a positive example
An example of this is the American Kyverna Therapeutics, which develops treatments for autoimmune diseases. The company raised $319 million in its initial public offering in early February. Demand for Kyverna shares was so high that it was forced to raise the price range at which it sold the first shares. Once trading began, the stock rose another 36 percent.
However, most of the companies now listed have come relatively far in the development process, and investors remain cautious about backing companies at earlier stages. Metagenomics, a preclinical group backed by Modern and Bayer, priced its IPO at $94 million and then fell 31 percent on its first day of trading.
“Biotech IPOs are largely driven by the same underlying economic circumstances as those in other sectors, but there are some specific factors that play a role. Among other things, M&A activity in the area is important, while we need great enthusiasm from specialist biotech investors, who are important buyers,” says Yasin Keshvargar.
Slightly cooler in the Nordics
If we shift our focus and look more closely at the Nordic region, IPOs of life science companies have continued to be conspicuous by their absence. At the same time, capital raisings have often been characterized by meager coverage ratios and many companies have been forced to pull the handbrake. People have simply had to adapt to the new reality.
Since the turn of the year, we have seen capital raisings in Arcede Pharma, WntResearch, CLS, Carbiotix, Hamlet Pharma and Eurocine Vaccines. CLS stands out here, having managed to achieve a coverage ratio of 100 percent in TO 6 B, which provided the Lund-based medical technology company with SEK 23,5 million. The proceeds will go to the ongoing the market launch of the company's laser ablation technology.
Eurocine forced to control balance sheet
It didn't really go as well for Eurocine Vaccines, which aimed to raise approximately SEK 7,5 million in a unit issue intended to finance the company's HSV-2 project. Shortly after announcing a subscription rate of 38,7 percent, the company prepared a control balance sheet. This is a control instrument that a limited liability company needs to use when it suspects that its equity is less than half of the registered share capital. The company has since called an extraordinary general meeting, at which it will decide whether the company should be continued or liquidated.
We note that the company's largest owner, Flerie Invest, during the process chose to reduce its holding. A flagging announcement states that as a result of the issue and sale of shares, it has reduced its ownership to 3,7 percent, from a previous 8,3 percent.
Could early US signals indicate a bottom?
We will have reason to return to how the investment mood in Nordic life science develops in the future. Hopefully, the recent signals from the US may mean that we in the Nordic region – which traditionally lags somewhat behind the American market – are now approaching the bottom, to turn to a more upward trend.