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U.S. biotechs raise more capital

Positive signals from the U.S.

U.S. biotechs raise more capital

20 February, 2024

The capital drought for biotech companies in recent years has probably not escaped anyone. Now, however, we are getting hopeful signals from the U.S. The Financial Times reports that U.S. biotech companies managed to raise a total of USD 6.2 billion in January, which is the highest number in a single month since February 2021, when biotech was at its peak.

The survey was conducted by the investment bank Jefferies, which is convinced that 2024 will be a strong year for the biotech sector. The amount of capital raised in January is in strong contrast to the situation in recent years, where many companies have been forced to cut staff and terminate  projects to save money, while others have been forced to shut down operations completely.

“There has been a noticeable, dramatic improvement in sentiment among investors,” Rahul Chaudhary, Head of Healthcare at Leerink Partners, told the Financial Times.

Opportunistic capital raises

The upswing comes after positive sentiments in the stock market, expectations that the Federal Reserve will soon start cutting interest rates and a boom in M&A activity in the sector. The SPDR S&P Biotech ETF (XBI) is a temperature gauge of the sector with a big following. After peaking in 2021, the fund fell by almost two-thirds, but since the end of October it has recovered by about 40 per cent on the returning optimism.

Jesse Mark, head of equities at Jefferies, says the most notable change is the increase in the amount of “opportunistic” capital raises that are not directly linked to any clear milestones in development.

“In two years of challenging markets, most companies were relying on catalysts to raise capital,” said Mark. Now, broader investor interest created a window for opportunistic issuance”.

Large backlog of companies that want 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’s a big backlog of biotech companies that have kept from going public over the past few years that are sharpening their pencils again,” said Yasin Keshvargar, capital markets partner at law firm Davis Polk.

Kyravian a positive example

An example of this is the American Kyverna Therapeutics, that develops treatments for autoimmune diseases. The company raised USD 319 million in its IPO in early February. The appetite for Kyverna shares was high enough for the company to raise the price range at which it sold the first shares. Once trading began, the stock rose another 36 per cent.

However, most of the recently listed companies have come relatively far in the development process, and investors remain cautious about supporting companies in earlier stages. Metagenomi, a preclinical company backed by Moderna and Bayer, priced its IPO at USD 94 million and fell 31 per cent on the first day of trading.

“Both biotech and non-biotech IPOs benefit from a lot of the same underlying economic circumstances . . . [but] there are some specific biotech factors such as increased M&A activity in the space, and enthusiasm from specialist biotech investors who are key buyers”, says Yasin Keshvargar.

Slightly cooler in the Nordics

Looking closer at the Nordic region, IPOs in the life science sector are still missing. At the same time, capital injections have often been characterised by low subscription rates and many companies have been forced to pull the handbrake. They simply have to adapt to the new reality.

Since the beginning of the year, we have seen capital raises in companies like Arcede Pharma, WntResearch, CLS, Carbiotix, Hamlet Pharma and Eurocine Vaccines. In this group of companies, CLS stands out, achieving a subscription rate of 100 percent in TO 6 B, providing the Lund-based medtech company with SEK 23.5 million. The capital injection will be used in the ongoing market launch of the company’s laser ablation technology.

Eurocine prepares balance sheet for liquidation purposes

Eurocine Vaccines were not as successful, aiming to raise approximately SEK 7.5 million in a unit issue to finance the company’s HSV-2 project. Shortly after announcing a subscription rate of 38.7 per cent, the company prepared a balance sheet for liquidation purposes. This is a control instrument that a limited liability company needs to resort to when it is suspected that the equity equals to less than half of the registered share capital. The company has since convened an extraordinary general meeting, where it will be decided whether the company should continue operations or be liquidated.

We note that the company’s largest shareholder, Flerie Invest, has chosen to reduce its position in the company. As a result of the rights issue and sale of shares, Flerie has reduced its share in Eurocine to 3.7 per cent, from previously holding 8.3 per cent of the company.

Could early U.S. signals indicate a bottom?

We will have reason to return to the investment sentiment in Nordic life science going forward. Hopefully, the recent signals from the U.S. will mean that the Nordic region – which traditionally lags slightly behind the U.S. market – is now approaching the bottom, to reverse to a more upward sloping trend.

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