Biotech stock fundings headed for best quarter in 3 years, Jefferies says (2024)

Dive Brief:

• Biotechnology companies raised close to $10 billion in follow-on stock offerings in January and February in the latest sign of renewed sector optimism, according to an analysis from investment bank Jefferies.
• Data the firm published over the weekend show biotech is on pace to post its highest quarterly total in three years, potentially exceeding the $11 billion companies raised in follow-on stock offerings in the first quarter of 2021. The average size of those financings increased from $167 million in January to $191 million in February, the report said.
• The surge in public stock fundings has coincided with an ongoing rally for biotech’s flagship stock funds and an early uptick in initial public offerings. The financing momentum is “driving a positive cycle and sector recovery,” Jefferies analysts wrote.

Dive Insight:

Prior to 2024, biotech had spent more than two years mired in one of the worst downturns in its history, a financing crunch that caused a number of companies to restructure or close altogether. Last year alone, more than 120 public biotechs laid off staff and at least 10,000 jobs were lost, according to BioPharma Dive data.

Yet a recovery could be underway. An upturn in deal-making, the prospect of interest rate cuts and the continued climb of the SPDR S&P Biotech ETF — which recently reached $100 for the first time since January 2022 — have combined to lift the value of biotech stocks. Those factors reflect “the market’s optimism about what we view as an ‘up cycle’ this year,” Jefferies analysts wrote.

Some industry insiders have expressed caution, noting sentiment could quickly shift due to broader economic factors and geopolitical uncertainty in an election year. “There is hope and optimism, but it isn’t clear whether the hope and optimism is driving the hope and optimism,” said Michael Cohen, the co-leader of Brown Rudnick’s venture capital group, after speaking with investors at the J.P. Morgan Healthcare Conference in January.

Nonetheless, multiple signs suggest that, at least for now, investors are tiptoeing back to biotech. One is that follow-on stock offerings —crucial funding that extends drugmakers’ financial runways — have been easier to raise. The Jefferies report shows that the roughly $10 billion biotechs brought in during January and February more than doubles the total raised in any quarter in 2023.

Importantly, some of those raises have come following positive clinical results, suggesting investors are buying into companies rather than selling shares after a news event. For instance, Apogee Therapeutics, Viking Therapeutics and Akero Therapeutics recently raised more than $1.4 billion combined after revealing anticipated study data. The returns from these and other follow-on financing deals have been “mostly positive,” with a number of them rising 50% from their deal price, Jefferies noted.

In January and February, biotechs also raised $4.3 billion in so-called PIPE financings, arrangements in which publicly traded companies sell shares to private investors in specially negotiated deal. The surge in interest in those offerings — headlined by the nine-figure raises of Avidity Biosciences, Denali Therapeutics and Crinetics Pharmaceuticals — has given biotech companies another route to raise needed cash.

The improving financing climate implies “biotech can get out of the ‘vicious cycle’ of bad events and a closed capital environment,” Jefferies analysts wrote. “We seem to have the exact opposite right now.”