As we look toward a busy fall and start preparing for in person JP Morgan 2023 (we can’t believe it either!), we thought now would be a good time to bring back our newsletter – especially as we’re coming off a string of positive data readouts and meaningful M&A; follow-on financings are becoming a more regular occurrence again; and the markets are starting to turn, with the XBI up over 50% from its trough in May.
Here’s what we’re hearing:
“Green Shoots” are Growing Quickly…
While the broader markets have been mixed, the mood on the Street is generally positive and biotech is emerging as a clear winner: the XBI has continued to trade up in recent weeks, leaving it up more than 60% from its May lows. In addition, during the week of 8/8, the value of the biotech sector rose by 6% to $253B. While this is still down 56% from the February 2021 peak, sector enterprise value is up over 60% from its trough.
As the Raymond James team pointed out, the market has always agreed on the catalysts required for a sector recovery – major positive clinical data, M&A activity and macro tailwinds – and the industry is finally delivering across the board; just look at the recent clinical data from Alnylam, CinCor, Karuna, Verona; Amgen’s acquisition of ChemoCentyx and Pfizer’s takeout of Global Blood; and the tone of recent CPI reports and updates from the Fed.
According to the Raymond James team, recent investor activity reflects this shift towards a stronger biotech market:
- Fundamental buying has picked up and is now accelerating, with investors actively looking for their “next idea;”
- Dedicated healthcare funds continue to take in additional capital, with the dual goals of taking advantage of current biotech valuations and managing high water marks/ability to attract and pay talent;
- A noticeable uptick in interest from generalists, who are beginning to feel they need exposure to biotech, particularly when names like CCXI and GBT have a meaningful impact on their benchmarks.
Importantly, a recent report from SVB suggests that a number of healthcare-dedicated funds and other large mutual funds have benefited substantially from recent M&A, suggesting they have substantial capital to redeploy: Fidelity, Capital World, Janus, T. Rowe, OrbiMed, Marshall Wace, Capital International, Allspring, Wellington, Perceptive, Cormorant, Oracle, Pictet, Eventide, Citadel, Baker Brothers, AllianceBernstein, Polar, Avidity and Vivo.
…and With Them, Comes a More Active Financing Market!
As the market as improved, capital markets activity – particularly for public companies – has increased in parallel. July saw the greatest number of follow-on offerings YTD, and we’ve also seen high levels of activity across the licensing front, the royalty market and the structured debt market, as companies explore multiple, creative options to move forward. In fact, last week was the most active week in the biotech follow-on market since February 2021!
The private market also remains relatively active, though it’s still expected to lag behind the public market rally, as (1) crossover investors continue to focus more on opportunities in the public market and (2) VCs and others with significant private portfolios maintain a heightened bar for new investments as they look to preserve capital for existing portfolio companies, who may look to their insiders for continued, more prolonged support.
Looking Ahead to JP Morgan 2023!
Our JP Morgan effort begins soon after Labor Day, with initial rounds of outreach planned for mid-October. As invitations have already started going out to covered companies, now is the time to make sure your hotel rooms are booked and your flights are scheduled! Please reach out to your Stern IR team with any logistical questions (or if you’re in search of recommendations) and we’d be happy to help. We are so looking forward to seeing you, in person, January 9-12 in SF!
Other In-Person Activities Upcoming:
As we gear up for the fall conference season, we are also excited to be supporting clients through a number of in-person, company-sponsored KOL Events and Investor Days, as follows:
— November 1, 2022: Blueprint Medicines Investor Day, New York, NY