Low interest rates and the prestige accruing to science-based companies during the pandemic are just two of the factors that led to a record-busting quarter for biotechs. In the second three months of 2020, companies in the industry raised the largest amounts of capital in both IPOs and follow-ons of any single quarter in the past ten years, according to a report by BioCentury.
The party shows no signs of slowing down. The huge bets on biotech are expected to continue during the third quarter given (some of) the sector’s history as solid defensive stocks, a category that’s likely to grow in favor as the economy struggles to overcome the effects of Covid-19.
During the second quarter, nearly $6.6 billion was invested into biotechs, pushing sector indexes to all-time highs. “Nobody wanted to touch biotech going into the election year,” PJT Partners’ Jami Rubin told BioCentury. “But now the industry is seen as the world’s savior. Thanks to progress made on the technology side, biotech will get us out of this mess.”
Most of the 13 buyside analysts contacted by BioCentury don’t see the appetite for biotechs abating. That’s because it appears the earliest an effective vaccine for the novel coronavirus could be ready is in the fourth quarter, and in my opinion this forecast is highly optimistic. A truly effective therapy is probably even further off.
In the second quarter alone, biotechs raised $7.5 billion through 34 IPOs, nearly double the previous high for one quarter in the past ten years. Investors who put their money into these new public companies have been tallying their winnings. BioCentury reports that as of June 30, the median after-market performance of the 2Q20 biotech IPOs was up 58%. Of the 34 IPOs, 29 had gained value.
Caption: SPDR Series Trust S&P Biotech (XBI, Financial) ETF
Among the biggest winners were Schrodinger Inc. (SDGR) with a 439% gain, Zentalis Pharmaceuticals Inc. (ZNTL) with 270%, Sinocelltech Group Limited (SHSE:688520) with 195% and ADC Therapeutics (ADCT) with 146%. At the other end of the spectrum were Anpac Bio-Medical Co. (ANPC) with a decline of -57%, Progenity Inc. (PROG) with a decline of-40% and Ayala Pharmaceuticals Inc (AYLA) with a decline of -33%.
In the second quarter, the SPDR Series Trust S&P Biotech (XBI) ETF grew 45%, outpacing the NASDAQ Composite and the Dow. Investors hungering for biotech IPOs have a full menu to consider. The number of sector companies planning to go public stands at 57, 32 of which have signed on since June 1.
Of course, the merry-go-round is going to stop some time, and most investors interviewed by BioCentury think the industry will start falling out of favor when an effective Covid-19 vaccine becomes widely available.
Disclosure: The author holds no positions in any of the stocks mentioned in this article.
Read more here:
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- Why Principia Could Be the Next Target of Sanofi's Makeover
- Pharmas Seeking to Overcome Patent Expirations
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