2015 Financial Markets Preview: Show me in 2015

How buysiders expect maturing sector to deliver growth in 2015

2015 Financial Markets Preview

Bankers and buysiders see no reason for the biotech sector to slow down in 2015 as a new innovation cycle continues to churn out products and drive growth in the large- and mid-cap names. The 20 investors who spoke with BioCentury also expect the follow-on market to remain open to small caps that deliver on clinical milestones.

The past year was extraordinary for biotech financings on the public markets. The $9 billion raised in IPOs and $10.6 billion in convert deals were record highs, while follow-ons came in at $11 billion, just shy of the all-time high of $11.4 billion in 2000.

Investors don't expect 2015 to be quite that spectacular. But they do think continued generalist interest, coupled with a strong M&A market that returned at least $66 billion to investors last year, means there should be ample capital to meet the financing needs of the sector in 2015.

Part of the optimism relates to the maturation of the industry, with a large cap group underpinning the sector with steady growth based on commercial success. And investors simply don't see any other sector - apart from tech - where generalists can put their money and see similar returns.

With over 170 new entrants to the market in the past two years, investors will be spending the first part of the year better familiarizing themselves with the new names. The upside is that specialists may start to build positions in a select number of recently public companies ahead of clinical milestones.

"2015 is going to be a show-me story year," said Polar Capital's David Pinniger.

Investors also expect IPOs to continue, barring any major shift in the macroeconomic outlook. There is some debate about whether IPOs will maintain their 2014 pace or begin to slow to a more natural rate.

Pricing power - particularly in the U.S. - is still an overhang for industry, although few investors expect it to come to a head in 2015. Buysiders also said any major blowups in hot therapeutic areas like cancer immunotherapy or HCV could negatively affect the sector.

However, investors felt that even a correction in the market would spur M&A, as lower valuations would make companies appear available at a relative discount.

Make it new

In 2014, investors saw a third straight year of strong returns from biotech. The BioCentury 100 Index, NYSE Arca Biotech Index (BTK) and NASDAQ Biotechnology Index were up 28%, 48% and 34%, respectively, adding to gains of

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