Hidden in the rough

Biotech winners, losers in 2Q18

Judicious stock picking was especially important in the second quarter, as 57% of global biotech stocks saw their equity values decline.

Volatility continued to roil global markets during the period and additional uncertainty looms with the U.S. mid-term elections on Nov. 6 expected to come into focus after the annual summer slowdown.

Nonetheless, investors are still bullish on small- and mid-cap biotechs developing new modalities such as gene therapies, while oncology and Orphan diseases broadly remain spaces where buysiders expect to generate substantial returns.

The new IPO architecture -- wherein top-notch VCs and crossover investors buy the bulk of the deals -- demonstrated once again that elite biotechs are relatively insulated from the market turmoil and can go public whenever they want (see “Elites Always Welcome”).

In fact, 2Q18 proved to be the biggest second quarter for total IPO funds raised since BioCentury began tracking financing data in 1994.

Twenty-seven global biotechs raised $3.9 billion in capital, topping 2Q15, which was the prior record holder with 33 biotechs securing $3.1 billion in cash.

The record was aided in part by bigger deal sizes. From 2012-17, second quarter NASDAQ IPOs took in an average of $76.4 million per deal, whereas 2Q18 IPO financings on NASDAQ pulled in an average of $107.2 million.

While some expressed worries of a newly inflating biotech bubble, an unusually constrained calendar featuring a contiguous cadence of high-profile events and meetings may have delayed road shows and book building, accounting for the late bolus of NASDAQ activity. The last three weeks of June, prior to the fourth of July holiday, saw 15 biotechs grab $1.5 billion (see “Bountiful, Not Bubbly”).

Bankers expect a cool-off in late July and August before another burst of deal flow kicks in after Labor Day.

Hong Kong Exchanges and Clearing Ltd.

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