By Jill Bederoff

Biotech is hot on the Nordic stock markets

Stockholm stands out with no less than 160 listed biotech companies and has, together with its Nordic neighbours, come to form the largest biotech cluster in Europe. And among investors, interest in the sector has expanded, three senior healthcare analysts argue.   

Biotech is hot on the Nordic stock markets, not least in Stockholm, where the Pharmaceuticals & Biotechnology Index has doubled over the last four years. From the point of view of investors, interest has also expanded.   

“The large Swedish pension funds used to keep between four and five percent of their portfolios in biotech, but today, the corresponding figure is between eight and nine percent. Then, there are some, such as AP4, which probably have 25 percent’s exposure to biotech,” says Patrik Ling, Senior Analyst Healthcare at DNB Markets.   

Johan Unnérus, Senior Healthcare Analyst at Pareto Securities, agrees, believing that Stockholm as a stock market has moved its positions forward quite dramatically when it comes to pharmaceuticals and biotech after previous setbacks and shutdowns.   

“Now, several smaller companies have emerged, which have been very successful, there is well-informed venture capital in quite a different way, and more companies have come on the market, even at a rather early phase,”  

Johan Unnérus.

Today, there are about 160 listed biotech companies on Nasdaq Stockholm and other Swedish stock markets, and together with the rest of the Nordic stock exchanges, they form the largest biotech cluster in Europe.   

“Not many people know this. Denmark is the most prominent within healthcare, but that’s solely due to Novo Nordisk. In Sweden, which is the second largest, there are plenty of companies, but the majority are companies that don’t make any money yet. Stockholm has also been attracting foreign biotech companies,” says Patrik Ling.  

The high level of activity and the large interest in biotech is based on good companies, good owners, good knowledge of the industry, and access to unlisted capital, according to Lars Hevreng, Equity Research Analyst at Danske Bank.   

“There’s been a gradual change since 2010. The pace of innovation and the numbers of approved products have established themselves at a much higher level, but that’s also related to the companies having changed their strategies and investing more in niche products with smaller patient groups. This has been made possible by relaxed regulations and simplifications in areas where there are unmet needs,” says Johan Unnérus.   

By introducing new pathways for orphan drugs where companies don’t need as much data to progress, it is today possible to get an approval based on far fewer patients than before, without lowering the regulatory bar in other areas, Johan Strömquist, CEO NDA Group, clarifies.   

“This has opened up for more small companies to take their product further through the development process, sometimes even all the way to market authorisation. And only then, in the commercialization phase, do they need help from companies with larger muscles.”   

Johan Strömquist

During last year, 15 new biotech companies came to Nasdaq Stockholm and Spotlight, previously Aktietorget. One of the more notable listings was Ascelia Pharma within oncology. The company’s primary candidate is a contrast medium used to improve detection of hepatic metastases during MRI scans. Denmark’s Sunstone Capital is the company’s largest owner.   

“There were fewer IPOs last year than during the two previous years. Last year, there was also much focus on follow-on investments, and my guess is that things will look more or less similar this year,” says Patrik Ling.  

Volatility remains a characteristic of the sector on the stock market.   

“It’s high risk, high reward. When good data come in, or when there are acquisitions, such as the one of Wilson Therapeutics, the share prices do very well. But then, there are also backlashes, as in the case of Hansa when the FDA demanded an additional controlled study that will take three years and cost lots of money, or in the case of Medivir, which also saw its share price drop. When the investors are being reminded of the risks, the sentiment turns,” says Patrik Ling.   

There is a strong focus on oncology and orphan drugs, and combinations of the two, among biotech companies globally today, something that is also reflected on Nasdaq Stockholm, according to the analysts. The reasons they point out are lower capital needs, limited sizes of clinical trials, large unmet needs, and prospects of high prices when the product reaches the market.   

At the other end of the scale are areas where the investors’ interest has cooled considerably, according to Johan Unnérus. Generics and the development of pharmaceuticals for very large patient populations are two examples.    

“The generics companies have their challenges, and the higher pace of innovation among research companies is one of them. Investing in blockbusters, with many patients at a low price, is hardly talked about anymore. Today, there’s a great risk that you’ll be surpassed by a fleet-footed innovator.”   

Patrik Ling is also cautious about certain treatments at the forefront of science. Cell therapy and CAR-T within immuno-oncology are two examples. 

“Even though you may have fantastic results, it’s also fantastically expensive to take the therapy to the market. So even if the companies are making giant introductions, the investors will have to have seriously deep pockets in order to dare to invest,” says Patrik Ling. 

There is a tendency remaining that the biotech companies are going to the stock market too early.   

“I and many with me would appreciate if the companies at least had their Phase II data in place when they float, but the very small ones may not even have completed Phase I. The companies mostly want to go to the stock market earlier than we find appropriate,” says Patrik Ling.  

There are two main reasons for this, Johan Strömquist adds. One is the relatively accessible public market in Stockholm and the other is the scarcity of private funding.  

“Even though any IPO is challenging it is so much easier in Sweden than in most places in the world for an early stage biotech. When combined with the relatively scarce private funding in the Nordics this is driving more companies to the stock market in earlier stages of development, despite the challenges this exposes them to. It is natural for analysts and stock market investors to hope for later stage introductions, but for most companies the question remains; what is the alternative?”