Predicting the Future: Cowen Analyzes Biotech Performance in Higher Interest Rate Environments
The Cowen research team published a new sector report last week, suggesting there’s reason to be optimistic regarding biotech’s performance in 2021. While much of the report focused on performance of the sector prior to and during Cowen’s own healthcare conference, the analysis also highlighted an important point vis-à-vis interest rates: investors have been concerned that rising interest rates could negatively impact biotech performance by eroding valuations.
The Cowen team conducted an analysis of the relationship between 1-, 5- and 10-year interest rates and performance across biotech indices (NBI, XBB, IBB) and the broader market (S&P 500 and NASDAQ) from 2000 to today. They found that the biotech sector has typically rallied when 10-year interest rates go up: rates increased in eight of the past 20 years, and in six of those years (75%), biotech indices posted an average annual return of 14%. That said, the Cowen team noted that the margin of biotech outperformance vs. the broader market has been thinner in years where 10-year interest rates increased, suggesting that interest rates may have a modest impact which is blunted by the robust performance of the sector.
FTC Crackdown on Pharma Mergers
Recent M&A deals have not faced much antitrust scrutiny but last week the Federal Trade Commission (FTC) announced that it is setting up an international working group to more closely evaluate pharmaceutical company mergers in light of concerns around drug pricing and anticompetitive behavior. This initiative follows a study by California Congresswoman Katie Porter asserting that pharma M&A harms innovation and hurts patients. The working group will be comprised of state attorneys general, the Department of Justice, as well as UK, European and Canadian counterparts, and will seek to identify concrete and actionable steps to update the analysis of pharma mergers and to determine what evidence would be needed to challenge a transaction.
Interestingly, this all comes as the FTC is mid-review of AstraZeneca’s proposed $39B buyout of Alexion and just a day after Alexion withdrew and refiled its notification and report under Hart-Scott-Rodino “in order to give the FTC additional time to review the proposed transaction.”
Biotech Capital Flow:
This week, RiverVest Venture Partners closed its largest fund yet – Fund V – a $275M fund that will invest in early-stage drug and medical device developers. With Fund V, RiverVest will be able to participate more fully in later equity rounds of portfolio companies.
The markets were slightly down this week, with the NASDAQ, DJI and S&P 500 closing down 1%, 1% and 1% respectively. Volatility continues to drop, with the VIX closing down 8% sitting at 19.81 as of market close on 3/25. The biotech markets performed marginally worse, with the NBI, BTK and XBI closing down 3%, 4% and 1% respectively.
We saw many deals price at the end of last week and through this week:
- 9 IPOs: Alignment ($490M), Connect ($220M); Design ($240M); Edgewise ($176M); Finch ($128M); Ikena ($125M); Instil ($368M); Lava ($101M); Universe ($25M).
- 10 follow-ons: Anixa ($23M); Atossa ($50M); Aveo ($48M); Casi ($33M); Evofem ($30M); Exagen ($60M); Prothena ($67M); TFF ($40M); Verrica ($30M); Windtree ($30M).
- Several private financings, including: AbiSci (Undisclosed, $125M); Asher (Series A, $55M); Aura (Undisclosed, $80M); Eliem (Seed, $80M); Emalex (Series C, $35M); EpimAb (Series C, $120M); Evidation (Series E, $153M); Gyroscope (Series C, $148M); Step (Series B, €35M); Viz.ai (Series C, $71M); XyloCor (Series A, $42M); Zenas BioPharma (Undisclosed); ($1910 Genetics (Series A, $22M).
- Additionally, we wanted to congratulate Stern IR Client 4D Pharma, which completed its merger with Longevity Acquisition Corporation this week. As a result, 4D’s ADSs are now trading on the NASDAQ under the ticker “LBPS.” Gross proceeds of the merger and concurrent private placement were approximately $39.8M.