Large cap comeback

Biotech’s large caps led the way in 3Q18 for first time in past six quarters

The biotech sector continued to be a stock pickers’ market through 3Q18 as there was a near even split between global biotech stocks that gained and lost value in the quarter.

While 1H18 saw investors overweight in small- and mid-cap names, most buysiders now view those same companies as already expensive or getting there, meaning investors have to be even more selective to find companies that still have upside.

On the flip side, large caps remain largely cheap on a P/E basis compared with pharma. While the relative value wasn’t new for the third quarter, it may partially explain why large caps were the best performing market tier group, up a median 8% for the quarter, as other market cap segments became increasingly more expensive. It was the first time in the past six quarters that large caps came out on top.

Meanwhile, financings bucked the typical summer lull. IPOs maintained their pace through 3Q18 with 24 deals raising $2.4 billion -- the largest number of deals and amount of money raised in the third quarter since 2014. Those deals included the first IPO on the Hong Kong stock exchange’s new biotech chapter -- from Ascletis Pharma Inc. -- which also happened to be the quarter’s largest IPO.

Ascletis raised HK$3.1 billion ($399.8 million) through the sale of 224.1 million shares at HK$14 per share on July 26, but the antiviral company’s after-market performance has underwhelmed. The stock finished the quarter at HK$7.74, down 45% from its opening price.

Follow-on financings had a record summer quarter with 57 deals, the highest number since BioCentury began tracking financings in 1994, and $6.8 billion raised, the second-largest amount of capital raised in a third quarter, just short of the $6.9 billion record set during the same period last year.

Again, Hong Kong paced the largest fund-raisers, with NASDAQ-listed cancer company BeiGene Ltd. raising a $902.7 billion

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