Biotech investment reaches fever pitch, but will it last?
In October 2017, Gilead completed the acquisition of Kite for $11.9bn – a major deal for the latter biotech – that foreshadowed the M&A ramp up seen at the beginning of 2018. The first month of the year saw some large biotech acquisitions completed, with Sanofi acquiring Ablynx for €3.9bn ($4.5bn) and Celgene completing a deal for Juno Therapeutics at a price of $9bn.
If the beginning of the year marked industry interest in securing large deals for biotech assets then the first half ended with significant investor confidence in backing biotech initial public offerings (IPOs).
A report, published by SiliconValleyBank, highlighted just how 2018 stacks up to previous years; it shows that this year, despite being only just over halfway through, has already surpassed 2016 (28 biotech IPOs) and, at the time of the report being published, was just behind 2017 (31), with a total number of 30 biotech IPOs.
Strength in numbers
A major question remains over why 2018 is experiencing such high a number of IPOs. In order to ascertain this, we spoke to Steve Skolnick, partner at Lowenstein Sandler – a law firm that represents clients in the life sciences sector and has been involved in IPOs for several clients already this year.
“The market and the economy have been strong this year, as well as the tax changes which are helping to drive investments and M&A activity and the momentum of deal flow – I think that these factors have helped drive the number of successful biotech IPOs. Of course, it’s hard to know exactly what drives the market.”
He continued: “The number of filings has increased significantly this year and we are even seeing a backlog at the US Securities and Exchange Commission (SEC).”
A record-breaking year or a bubble set to burst?
As IPO numbers reach the midway point of 2014’s 67-strong record, 2018 could overtake this mark.
Skolnick cautioned that there is still uncertainty over the strength of the market in the latter half of the year: “[It] is a concern but you have to look at the market on a daily basis – things have been good but we do see a fair amount of volatility caused by normal market indicators and the political climate, which has had a big impact.”
Expanding on the point of the role politics plays on the market, he explained why US mid-term elections this year could be particularly significant for how investment into biotechs pans out for the rest of 2018: “Everybody is always concerned about elections because it brings up the questions: who’s going to control the House, who’s going to control the Senate? With the political climate we’re in, you just never know. You’ve got an economy doing pretty well right now but the concern people have is whether what happens in the election is going to impact the economy. There’s always a fear of the unknown”.
There’s also the risk that the market becomes over-heated; one of the largest biotech IPOs to date occurred in 2015, when Axovant raised $315m on the back of a rejected drug from GSK.
With such a large sum raised on the back of one, questionable drug candidate, there was concern that it was symptomatic of the over-enthusiasm by investors, at the time, and such fears were justified when it later didn’t hit its endpoints in the clinic. As the sums being spent in 2018 increases, this painful lesson for some investors may be noted more often.
However, Skolnick highlighted the resilience of the market this year, “We’ve seen some downturns but in the past, these downturns have put a halt to the market. It seems that the downturns we’ve experienced have had little to no impact on whether deals were completed or not – which is a little surprising.”
