Unlock Editor’s Digest for free
Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
Biotech companies are rushing to raise money in U.S. stock markets at the fastest pace since the peak of the market boom amid the pandemic.
Drug developers raised $6.2 billion in capital markets in January, according to data from Jefferies. This is the highest total since February 2021, the same month the most popular biotech stock tracker hit its all-time high.
The increase in funding marks a sharp turnaround after two years of drought in deals, which forced many companies to cut jobs and abandon projects to save costs, and forced some to go out of business.
“There has been a notable and dramatic improvement in sentiment among investors,” said Rahul Chaudhary, head of healthcare capital markets at Leerink Partners.
Fundraising was spurred by a rebound in stock prices, expectations that the Federal Reserve would soon begin cutting interest rates and a boom in mergers and acquisitions in the sector.
The closely followed SPDR S&P Biotech ETF has fallen nearly two-thirds from its 2021 peak, weighed down by rising interest rates and a backlash to pandemic-era excessive optimism with regard to new drugs. However, it has rebounded about 40 percent since late October as investors bet that interest rates have peaked.
Jesse Mark, head of capital markets at Jefferies, said the most notable change was an increase in “opportunistic” transactions from companies whose fundraising is not linked to encouraging data on drug trials or other scientific stages.
“During two years of difficult markets, most companies relied on catalysts to raise capital,” Mark said. Now, he added, “broader investor interest has created a window for opportunistic issuance.”
Most of the recent fundraising – $5.6 billion – was raised by already-listed companies, but IPOs have also accelerated and the strong performance of recent deals should encourage further growth.
“There’s a good backlog of biotech companies that haven’t gone public in the last year and are sharpening their pencils again,” said Yasin Keshvargar, capital markets partner at Davis Polk, the law office.
Kyverna Therapeutics, which is developing therapies to treat autoimmune diseases, provided the latest sign of investor appetite by raising $319 million in an IPO last week. Kyverna raised its target price range, sold shares above the high of the raised target, then saw its stock jump another 36 percent on its first day of trading.
Peter Maag, chief executive of Kyverna, said it was a “remarkable result” and said he was particularly encouraged by the level of interest from large generalist mutual fund investors, rather than just health specialists.
However, most listed companies were relatively advanced in the drug development process, and investors remain cautious about backing early-stage companies. Metagenomi, a preclinical group backed by Moderna and Bayer, priced its $94 million IPO last week at the bottom of its target range and fell 31 percent on its first day of trading Friday.
Maag said it may take longer for fundraising to rebound for riskier companies, but added: “If you have good clinical data and know what you’re doing, I think the companies are financeable at the moment.”
Biotechnology companies are particularly dependent on stock markets because they often need significant capital to finance drug development before generating enough revenue to repay their debt.
Keshvargar said the rise in biotech deals was a “positive” sign for those hoping for a broader rebound in other sectors, but said it was “not directly transferable.”
“Biotech and non-biotech IPOs benefit largely from the same underlying economic circumstances. . .[but]there are some specific biotech factors such as increased M&A activity in the sector and the enthusiasm of specialist biotech investors who are key buyers,” he added.