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  • Jonathan Poyer

The Capital Well is Running Dry For Biotech...For Now

A Financial Times article on biotech funding and activity is fairly stark: ARTICLE

From the article: "Almost 200 listed biotechs globally are trading below the value of their cash reserves, according to investment bank Torreya Capital, and more are now swallowing draconian deals to survive as the funding drought in public markets deepens."

Only 9 biotech firms have listed in the US this year compared to almost 60 companies last year.

For some further comparisons looking at data from LifeSci Capital:

So far this year we have seen:

56 biotech transactions totaling just under $7B. Comparatively, in 2021 there were 192 biotech transactions totaling just under $25B for the same time period.

For Q1, in 2022 we have seen 24 biotech transactions totaling just over $3B compared to Q1 2021 with 146 biotech transactions totaling just under $18B.

There are many reasons that the biotech indices have had a tough going but surely the increasing cost of capital is an important one:

Back to the article and a quote from Mark Charest, a portfolio manager at LifeSci Fund Management: "What we have seen in the few follow-ons that are getting done are draconian pricing terms, warrant deals coming back and low valuations."

Again, from Dr. Charest: "Quality [of biotechs on public markets] is lower in part because of the promiscuous capital markets of the past two years."

If the cost of capital is not as cheap as it was and valuations are wonky, I would assume that we will see some serious shake-ups when it comes to this space. Most likely, we will see the exit of a lot of noise and what is left in biotech will be in great shape.

The majority of big pharma companies will lose 33-50+% of their 2023 revenue by 2030, making every viable revenue stream in SMID biotech a potential acquisition target at a certain price relative to the growth rate and duration.

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