Muted Biotech Sentiment Heading into June?
This week, Cowen published its monthly Biotech Thermometer, reflecting investor sentiment throughout the month of May. Unsurprisingly, Cowen found that specialists are feeling frustrated and looking for conviction in new ideas. There are a couple reasons for this:
- The performance around binary events has turned negative, with stocks trading down even on results that appear positive. This effectively punishes investors even when they correctly predict fundamentals, and so many are choosing to stay on the sidelines of events for which they don’t have particularly high conviction.
- With the exception of a few standout transactions, the aftermarket performance of recent IPOs has cooled, removing a key source of alpha.
Cowen suggests that clarity on the potential for major drug pricing/reimbursement reform is likely necessary before generalists revisit biotech in any serious way. HR 3 is of particular concern; while defeat of this proposal could reignite generalist interest, Cowen assumes that investors will want clarity on what proposals would replace it before jumping back in with both feet.
Nasdaq: Now Accepting Primary Direct Floor Listings
Last month, the SEC approved Nasdaq’s proposed rule change to permit primary direct floor listings, permitting companies to undertake an IPO and concurrent Nasdaq listing without use of underwriters to market the shares. Primary direct floor listings had previously been available only for secondary offerings by existing shareholders on the Nasdaq, though they have been permitted for new issuers on the NYSE since December 2020.
venBio closes $550 M latest VC fund, Frazier $1.4B for growth/PE
Specialist funds continue to rake in capital to deploy in our industry. venBio closed its fourth life sciences fund (Fund IV) at ~ $550 million to support between 12 to 15 new life sciences companies, and its existing portfolio companies.
And before the Memorial Day holiday, the Frazier Healthcare announced a $1.4B raise for a growth buyout PE fund, which will search for “middle market” companies to take over. Specifically, it will fund controlling interests in healthcare companies with net income between $10 million and $75 million, and it’s willing to invest up to $300 million to get there.
The “SPAC King” Funds 4 Biotech SPACs
Earlier this week, Chamanth Palihapitiya – the so called “SPAC King,” a co-owner of the Golden State Warriors, and tech billionaire – turned his attention to biotech, filing SEC paperwork to launch four blank-check companies, each penciling in $200M raises and targeting different sectors of the industry. The SPACs, called Social Capital Suvretta Holdings Corps. I through IV, are aiming to take public biotechs focusing on neurology, oncology, “the organ space subsector” and immunology.
Palihapitiya is no stranger to the SPAC market. While these are his first SPACs in biotech, he has previously launched six SPACs across multiple industries. Four of his firms have found partners so far, including ones that took Virgin Galactic and Clover Health public.
Market Update:
The overall markets were flat this week, with the NASDAQ, DJI and S&P 500 closing down 1%, up 1% and down 1%, respectively. The VIX closed up 8%, sitting at 18.04 as of market close on 6/3. The biotech markets performed similarly, with the NBI, BTK and XBI closing flat, down 1% and down 1%, respectively.
The public capital markets for biotech came back over the last 2 weeks following a distinct lull reflecting the sector underperformance including the following deals:
- IPOs: Centessa ($330M), Day One ($184M), Singular Genomics Systems ($258M)
- Follow-ons: Achieve ($23M), Reviva ($30M). Syneos Health (Undisclosed)
- De-SPAC announced: eFFECTOR Therapeutics merged with Locust Walk Acquisition Corp ($175M, plus $60M PIPE)
In addition, the IPO queue continues to swell. Just last week, seven biotech companies filed S-1s publicly with the SEC, including four who filed to raise $100M as their initial placeholder: Ambrx, Century, Cyteir and Verve.
Many private financings, including: Ajax Therapeutics (Not disclosed, $40M); Amyl Therapeutics (Series A, €18M); August Bioservices (Series A, $24M); Clear Labs (Series C, $60M); Eliem Therapeutics (Series B, $60M); Engine Biosciences (Series A, $43M); Esco Lifesciences (Series A, $200M); Evolve BioSystems (Series D, $65M+); GenapSys (Series D, $70M); Invaio Sciences (Series C, $89M); Nikang Therapeutics (Series C, $200M); Pulmocide (Series C, $92M); Stablix (Series A, $63M)
Additionally, Stern IR congratulates client MorphoSys AG on its acquisition of Constellation Pharmaceuticals!