Biotech sees a resurgence in investment following a prolonged dry spell
Biotech is starting to emerge from its deep freeze. Since the beginning of 2024, around six biotech firms have raised hundreds of millions of dollars through initial public offerings. Investors see the early start to the new year as a positive development for the business following a difficult two years caused by layoffs, scientific obstacles, and rising interest rates. In 2022 and 2023, fewer than 20 companies chose to go public.
Jefferies analysts claim that biotechs have received follow-on financing of over $6 billion since the beginning of the year through mid-February. This pace has already surpassed all quarterly amounts recorded since the second quarter of 2021, setting a new record.
According to statistics from research firm PitchBook, venture capitalists have spent $3.2 billion in biotechs so far this year, up from $3 billion in the same period in 2023.
Jordan Saxe, head of healthcare listings at Nasdaq, stated, “The healthy market is back, and it’s not just a fad.”
Unlike in years past, when pharmaceuticals without sufficient evidence of efficacy were able to break into the market, investors are showing interest in firms that are further along in the development of their medication therapies. Companies pursuing some of the most popular topics in biotech research, like cancer, weight reduction, and nonopioid pain therapy, are also accumulating wealth.
The latest market debut of Kyverna Therapeutics brought in almost $337 million in net proceeds, which will go toward the development of the company’s medications for autoimmune diseases, according to Chief Executive Peter Maag. Kyverna employs CAR-T, a cellular-therapy approach that has demonstrated efficacy in the treatment of some malignancies.
The five years it took to become an overnight success were well documented by Maag. “The applause was out of this world.”
Over the last two years, biotech has been mired in a doldrums due to high interest rates, a deal market that isn’t always reliable, and Wall Street’s reduced risk appetite. There was a slowdown in startups going public or seeking more capital.
With 88 businesses going public in 2021 and 66 in 2020, there was a considerable decline in the number of venture-capital-backed biotechs in 2022 and 2023, with just 17 and 18 companies going public, respectively, according to PitchBook. Layoffs occur when companies reduce spending. Some shuttered.
Things started to turn around towards the close of last year, when investors were anticipating decreases to federal interest rates and major pharmaceutical corporations launched a rush of deals. Another factor was pent-up demand.
In regards to initial public offerings of stock, Christiana Bardon, co-managing partner of biotechnology investment firm MPM BioImpact, stated, “We’re on a reasonable pace to definitely exceed last year, which is a low, low bar.”.
In comparison to bygone eras, investors now show more interest in different types of businesses. Companies with medication prospects in later-stage human testing and findings from the studies due very soon are now appealing to investors since they show that the company is further along in developing its therapies.
In its initial public offering (IPO) last month, CG Oncology, which is developing a treatment for bladder cancer and is now in late-stage studies, garnered over $400 million. In 2024, the firm raised more capital than anticipated, becoming the first biotech to do so.
Shortly after, ArriVent BioPharma, a biotech with a lung cancer medication in the last stages of clinical trials, made its market debut and received around $180 million in net funds.
Similarly, biotechs operating in hotspots are drawing attention. The clinical-stage biotech company BioAge Labs, which collaborates with Eli Lilly and focuses on treatments for metabolic disorders and obesity, reported on February 13 that it had raised $170 million.
The nonopioid medicines developed by Latigo Biotherapeutics were funded with $135 million when the company was formed in mid-February. A new class of medications targeting molecular pathways involved in feeling pain has emerged, and Latigo’s chair, Nancy Stagliano, has stated that the business reaped the benefits of recent positive late-stage research findings for a distinct nonopioid pain-drug candidate from Vertex Pharmaceuticals.
The aim and these approaches in general still carried a significant degree of risk when we began the company, according to Stagliano. “That risk has been diminished, though, as time has progressed and the Vertex program has advanced.”
According to Michael Yee, a biotech analyst at Jefferies, if the current rate of investment in the industry continues, follow-on funding in the second half of the quarter might surpass the $11 billion raised in Q1 of 2021, the largest quarterly total in recent memory.
Investors are wary that biotech may still face challenges despite these encouraging early signals of revival. Potentially slower-than-expected interest rate decreases this year could prompt a shift in optimistic sentiment.
