Investment during the crisis
By Jill Bederoff
While some biotech companies are currently wading in investors’ cash, others find themselves being on the wrong side of the COVID-19 crisis for any money to come their way at all.
Pennies from investors’ heaven have been pouring down over major biotech companies, surprisingly unaffectedly by the coronavirus pandemic and its devastating effects on the global economy. During the last month and a half alone, investors have been showering a full USD 4bn over already well-capitalised U.S. biotech funds. Arch Venture Partners contributed USD 1.5bn, closely followed by Flagship Pioneering with USD 1.1bn, Venbio Partners with nearly USD 400m; and, last but not least, Oberland Capital tossed more than USD 1bn into the pot. The new Arch Venture Partners fund, X Overage, will be used for investments in early stage companies, but in fewer and larger deals than the earlier funds. Flagship Pioneering will continue to invest in companies originated and operating within its Flagship Labs unit.
The biotech market is unique for several reasons. One of them is the long-term focus of its investors. Instead of judging companies by their quarterly performance, their perspective is much longer, since the drug development cycle is so long. Throughout that timeframe, biotech companies need to continue raising capital to bankroll their pipelines. That includes tapping the public markets not only for IPO proceeds, but for continued offerings to keep funding the next stage of development.
“In the case of Oncopeptides, it was their fourth issue, but the first time they got heavyweight American investors on board. The company has been delivering good data, so it wasn’t a blank page. We’ve also run a roadshow”, says Patrik Ling, Senior Analyst Healthcare at DNB Markets.
Apart from Oncopeptides, Norway’s Bergenbio has raised NOK 500m in an oversubscribed private placement to develop its pipeline – which includes a potential COVID-19 therapy.
“That’s one of six projects that has also received
financing from the British government”, Patrik Ling says.
In addition, the Norwegian company Photocure, which already has products on the market, has issued shares in order to be able to rebuy rights that the company has previously licenced out.
In China, venture capital funding rebounded in March, as investors went hunting for bargains among start-ups after the coronavirus outbreak. Chinese start-ups and technology companies raised more than USD 2.5bn during the month, a record sixfold rise from a mere USD 410m in February, according to data from the Asian Venture Capital Journal. The rise in activity suggested that investment funds were taking advantage of lower valuations resulting from the pandemic in order to invest in sectors such as biotechnology.
“More and more companies are opening up. In Asia, quite clearly; in Europe, somewhat more cautiously”, says Johan Unnérus, Senior Healthcare Analyst at Pareto Securities.
“But the Swedish market is far from closed”, he continues. “There is venture capital and transactions are being made, even though investors are a little more cautious. It’s easiest for companies that are being positively affected by the pandemic, but as for companies affected operatively by the pandemic, things might be more difficult”, he says.
Patrik Ling sees a capital market that is very, very positive – for the right companies.
“In one week, we’ve carried out three transactions and taken in well over SEK 2bn. Demand has been incredibly strong, so right now, I think we can’t complain”.
However, far from everything is coming up roses for the industry.
“It’s much tougher now”, says Helena Strigård, CEO of the business organisation Sweden Bio.
“You can find money, but often at large discounts, perhaps as much as 50 per cent. I’d like to contribute to the feeling that we have great projects and that things are running well for Swedish companies, but if you ask if things have become tougher, the answer is a resounding yes”.
Companies finding themselves on the wrong side of COVID-19 risk not getting any financing, no matter how exciting their projects are, Helena Strigård says, the market forces being put out of action by the crisis.
“I’d like to counteract bad luck. We need a business now that’s able to support those that are viable but that have only been unlucky enough to try to raise funds when the world is turned upside down. Most biotech companies in Sweden are micro companies, that is, having fewer than ten employees, and perhaps only having one or two projects. They’re extremely vulnerable to changes in the willingness to invest”.
In addition, reduced or cancelled dividends have also contributed to turning the capital tap off for the sector.
“The influx of cash that usually benefits funds and others this time of the year in the shape of dividends is gone”, says Lars Hevreng, Equity Research at Danske Bank.
“Investment during the crisis ” is the first of three articles from NDA Accelerator on how the corona pandemic has been affecting the Nordic biotech industry.