Early Spring in US Biotech: Fundraising Hits Highest Level in 3 Years

Successful IPO Companies Emerge
$6.2 Billion Attracted... Mood Reversal

After the decline in the COVID-19 pandemic, optimism about the US pharmaceutical and biotech sectors, which had struggled, is gaining momentum. Last month, they raised the largest amount of capital in three years on the New York Stock Exchange.

This is an indicator showing that investment sentiment in the pharmaceutical and biotech sectors, which had been slow to recover despite the Federal Reserve's (Fed) change in stance on interest rate policy at the end of last year, is improving.

On the 12th (local time), global investment bank (IB) Jefferies reported that US pharmaceutical and biotech companies raised a total of $6.2 billion in the equity market last month. This is the largest amount of capital raised since February 2021, when liquidity from ultra-low interest rates and expectations for new drug development peaked, setting a record high.

As it became difficult to attract investment due to the impact of high interest rates, companies reduced jobs, put various research and development (R&D) projects on hold, and even faced delisting and bankruptcy, but the trend in the pharmaceutical and biotech industry is changing, according to analysis.

Especially last year, except for obesity treatments like Wegovy from Danish pharmaceutical company Novo Nordisk and Mounjaro from US pharmaceutical company Eli Lilly, the industry did not receive much attention. The representative exchange-traded fund (ETF) for the pharmaceutical and biotech sector, 'SPDR S&P Biotech ETF (ticker XBI),' plummeted about 60% from its 2021 peak last year, then sought a rebound on the possibility of a Fed pivot, but its performance remains modest compared to the S&P 500 index.

However, recently, the atmosphere is said to be reversing to the extent that pharmaceutical and biotech companies have successfully completed initial public offerings (IPOs).

For example, CG Oncology, a developer of tumor immunotherapy, which debuted on Nasdaq on the 25th of last month, saw its stock price surge 96% on the first day of trading and closed at $43.74, up 5.2% that day, reaching its highest price. Kiverna Therapeutics, a developer of autoimmune disease treatments, attracted attention by raising $319 million in its IPO last week. Its stock price jumped 36% on the first day of trading. Of course, there are exceptions such as Metagenomi, a preclinical-stage company whose stock plunged 31% on its Nasdaq debut on the 9th of this month, indicating that more time is needed for the pharmaceutical and biotech sector. This is clearly different from the COVID-19 pandemic period when investors did not hesitate to invest even in companies at the early stages of new drug development.

On Wall Street, there is speculation that investment sentiment will continue to improve as mergers and acquisitions (M&A) activities by large pharmaceutical companies have increased since the second half of last year. After Pfizer announced in September last year that it would acquire antibody-drug conjugate (ADC) developer Seagen for $43 billion, another major company, AstraZeneca, announced in December that it would acquire Chinese company Gracell, which develops cell therapy cancer drugs, for $1.2 billion. This second M&A boom is analyzed to have been decisively influenced by the US regulatory authorities' approval of Amgen's acquisition of Horizon Therapeutics for $28 billion.

However, since the number of industry deals and capital-raising activities is not expected to continue at the level seen during the COVID-19 pandemic, caution is advised in investing. A portfolio manager of the healthcare and biotechnology team at global asset management group Janus Henderson Group noted in a memo, "During COVID-19, biotech stocks rode a momentum regardless of the quality of their pipelines or balance sheets, but the situation is different now."