Bruised biotech investors focus on companies with more advanced products

Pharmaceutical tablets and capsules are laid out in the shape of a US dollar sign on a table in this illustration, August 20, 2014. REUTERS/Srdjan Zivulovic/File Photo

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June 27 (Reuters) – Biotech investors suffering losses from falling stock prices are now focusing on companies that are closer to bringing their drugs to market, rather than those in the early stages of development.

This waning appetite for risk, six industry insiders told Reuters, follows a year of successful funding in a sector that has been rocked by falling valuations and a lack of big deals, usually a key attraction for investors. small and mid-cap biotechnology.

Interest in biotech companies seeking to go public is now mostly focused on those whose drug candidates are already in clinical trials, fund managers, analysts and industry sources said. biotechnology.

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“Investors are becoming much more selective and it’s a very tough time for biotech to go public,” said Avery Spear, principal data analyst at initial public offering (IPO) research firm Renaissance Capital.

Only five of the 102 biotech companies listed last year in the United States are now trading above their opening price.

Meanwhile, in the private market, seed funding is flowing to companies whose lead investigational drugs have made it to human testing, said Jonathan Norris, managing director of the Silicon Valley healthcare practice. Bank.

Norris expects public investors to be risk averse until at least the end of 2022, and possibly until the middle of next year.

A record year 2021 for biotech funding has helped a number of companies, even those without clinical candidates, go public at skyrocketing valuations.

“Small- and mid-cap biotechnology were coming in at incredibly high valuations and so people involved in those were burned by them,” said Lee Brown, global head of healthcare for investment research firm Third Bridge. .

Last year, there were a record 152 biotech IPOs globally, with companies raising more than $25 billion in total, according to Refinitiv data.

As of June 10, 23 biotechs had gone public worldwide in 2022, raising $2.3 billion, compared to 68 in the same period last year.

The Nasdaq Biotechnology Index (.NBI) is down 18.6% for the year and nearly a third of the stocks that make up the biotech index are trading at negative enterprise value, according to data from Refinitiv .

This means that the value of their equity and debt, which together make up their enterprise value, together are less than the cash they hold, a sign of pessimism about their prospects.

This follows a lack of major healthcare deals, as well as regulatory scrutiny, including a greater antitrust focus on pharma mergers and acquisitions as a way to curb rising drug prices. . (https://reut.rs/3nhttqf)

“M&A activity is what motivates people to get involved in small- and mid-cap biotech because they’re hoping for a lottery ticket,” Brown said.

A lack of funding forces many small drug developers with multiple candidates to narrow down or prioritize the candidates they develop.

Analyst Zegbeh Jallah, in a May 27 report from Roth Capital, cited a growing tendency to fund only low-risk programs and those that are more likely to drive valuations higher in the short term.

In May, bacterial therapy developer BiomX (PHGE.A) announced it was cutting its workforce by 50% to further expand capital resources for its clinical trial “in light of the challenges facing our industry.” .

Genocea Biosciences, meanwhile, ceased operations and delisted from the Nasdaq in early June, about a month after an unsuccessful search for a buyer for all or part of the cancer immunotherapy developer.

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Reporting by Leroy Leo and Mrinalika Roy in Bengaluru; Editing by Arun Koyyur

Our standards: The Thomson Reuters Trust Principles.

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