Category: Investor-Relations 

The J.P. Morgan Healthcare Conference, a major event in the biotech industry held in San Francisco, kicked off with a bang as three large transactions, AstraZeneca’s purchase of CinCor Pharma, Ipsen’s acquisition of Albireo and Chiesi Farmaceutici ’s Amryt Pharma acquisition, boosted the mood of investors and led to significant gains in the Nasdaq Biotechnology Index. However, the future of the industry remains uncertain amidst ongoing global economic concerns.

Here is what you need to know according to our experts:

2022 IPO Landscape: From Booming to Glooming - As the biopharma and medtech industries begin to settle back into a new normal after the Covid-19 pandemic, challenges that have remained unresolved are predicted to come to the forefront and become more pressing in 2023. Combined with the macroeconomic conditions of high inflation and a tight IPO market, which may force smaller companies to question the sustainability of their operations, and the added political instability globally, surely there are more challenges ahead.

It’s no secret, biotech IPO counts, volume, and performance over the first 12 months have dropped considerably.  Due to this significant shift, the fall in valuations has resulted in fewer biotech companies going public, with only 20 listings in 2022 compared to 107 in 2021. There have been some large follow-on financings on NASDAQ, but many founders are reluctant to sell equity at discounted valuations, which would also affect existing investors. Many expect the IPO market to remain closed throughout 2023, putting pressure on later-stage private companies that cannot list or without public market funding options.

However, despite the current economic uncertainty, other market watchers feel the sector is poised to experience higher growth in 2023. As the macro environment improves, a rotation towards growth-oriented stocks may create more favourable conditions for IPOs. With a focus on areas such as cancer, rare diseases, vaccines and therapies, plus gene therapy and editing, investors will remain on the lookout for promising late-stage companies with high-quality assets or disruptive platforms. Whether the recent IPO dip is an indication of a brighter future ahead, biotech companies continue to build innovation and value and the only thing left to do is to buckle up.

Selective Support for Biotech Secondaries in 2022 - The market for secondary offerings in the biotech sector in 2022 has been mixed, with some offerings performing well and others performing poorly (114% (MCRB) to -44% (CDAK). SMid- Caps, in general, tend to be driven by value-creating catalysts such as positive pipelines reads, regulatory progress, and readthrough from competitor data. However, recent offerings have been taking place without any clear event and are mainly based on market conditions (i.e. NTLA). As we move through 2023, it will be interesting to see what catalysts the market deems necessary for successful secondary offerings and how investors will respond to them. 

Alternative Financing: A Lifeline for Biotech Companies - In 2022, biotech companies have had to be creative with their financing solutions. With valuations at record lows, many are turning to alternative financing methods to avoid dilution at depressed valuations. These include royalty and license agreements, debt financing, private placements and PIPE offerings. And with limited funding options, other companies needing to extend their cash runways have implemented restructuring and layoffs to maintain shareholder value. At least 115 biotechs underwent restructurings, layoffs, or pipeline reprioritizations in 2022 with multiple examples of 25-50% staff reduction.

As the current market volatility presents a challenge for biotech companies, market watchers expect alternative financing methods will continue to be utilized until valuations improve. As such, biotech companies will remain creative in their financing solutions in order to continue operations and remain competitive in the current environment.  It may not be ideal, but it just might keep them afloat until the market turns around.

Growth Potential in the Biotech Sector:  Ready to Reap? - The biotech sector saw an uptick in M&A activity in 2022, but it fell short of investors' expectations given the drawdown in SMid-Cap valuations. However, a modest increase in deal value and a year-end surge in M&A activity suggest that the sector has potential for growth in 2023. 

Large-Cap BioPharma – Filling the Gap - Large-cap Biopharma companies are expected to benefit in the early part of 2023 due to the lingering recession and attractive valuations compared to the broader market. Although some pharma companies have been more successful than others in addressing growth concerns, the industry as a whole still has a lot of work to do. This could include a continued focus on M&A, as the clinical catalyst calendar for larger-cap biopharma is not expected to be very active. As investors and companies look to capitalize on the growth opportunities, it will be interesting to see how the sector fares in terms of M&A activity. Fun fact: Large-cap therapeutics have ~$200Bn of cash on hand that is ~40% of all of SMid-Cap biotech’s aggregate market cap of ~$500Bn.

Smid-Cap Biotech – A Hotbed of Innovation - The SMid-Cap biotech sector is predicted to remain a hotbed of innovation with several important clinical and regulatory catalysts in 2023. Areas such as gene and cell therapy, gene editing, immuno-oncology, targeted oncology, and degraders are all expected to bring disruptive therapies which potentially bodes well for 2023 M&A activity from larger companies. 

In 2022, the US Food and Drug Administration (FDA) approved a total of 32 new drugs, a 35% decrease from the preceding three years, yet still part of a generally positive long-term growth trend. Notably, first-in-class approvals and Investigational New Drug (IND) receipts both saw increases, likely due to the increasing number of clinical trials being conducted and the FDA's efforts to streamline the review and approval process for INDs.

Although big pharma executives have their eyes on attractive valuations and potential growth opportunities in the biotech sector, particularly as the patent cliff looms over the next six years, biotech executives remain cautious of investor sentiment and will be looking for fair valuations and support from private investors, who now need to back their portfolio companies for longer than they predicted. 

With large-caps having plenty of cash to be buyers and help consolidate the sector, there is plenty of rationale as to why M&A should continue to pick up in 2023 (and be tailwind to sector performance). It's clear that with continued depressed valuations and a volatile macro environment, M&A will be a closely watched theme into 2023.

Finally, this too shall pass - There have only been two periods in biotech’s history since 2000, where there were two consecutive years of price declines in the sector: 2001-2002 (i.e. the genomics bubble) and 2021-2022. Never has the sector seen three consecutive years of price declines, genomics bubble or great financial crisis (GFC) included. Therefore, many believe 2023 will be a test year for this dynamic. But…there is always a first for everything, however with the odds of a third-year decline being highly unlikely, both empirically and fundamentally, it is likely that the worst of the declines have already passed and that 2023 will be a year of recovery for the sector.
 
Stay tuned for more news and insights on this exciting and dynamic industry!