Signs of recovery in the funding of biotechnology

Translation: Original comment published in Finnish on 5/19/2023 at 6:20 am.

In a recent Life Science Business Review we estimated that the financing environment of the sector has started recovering from the bottom seen in spring 2022. The recent statistics published by the scientific journal Nature Biotechnology concerning Q1’23 support this view. The total amount of funding has been well above the previous quarters in Q4’22-Q1’23. Financial activity has increased, especially in terms of mergers and acquisitions. On the other hand, the global IPO market, particularly in Europe, has not yet recovered.

Total funding of biotechnology companies recovered from 2022 bottom

The total global funding of biotechnology companies was USD 90.0 billion in Q1’23, an increase of 56% on the comparison quarter of the year before. Growth was driven by a recovery in mergers and acquisitions that increased to USD 55.5 billion (+739%). Partnership agreements fell by -36% from the comparison period. We believe the decrease is mainly explained by the timing of non-recurring large contracts.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology
* Investment in a company that is already in the investor’s portfolio
** Private Investment in Public Equity

Number of IPOs and capital collected in them are still in a recession

Globally, the number of biotechnology company IPOs was 8 in Q1’23. The number decreased strongly from 23 in the comparison period, which was still a relatively active IPO quarter before the sharp fall in activity in Q2’22. In Europe, there has only been one listing in the last four quarters but activity is also relatively low in the rest of the world. Funding collected in the IPOs fell even more strongly than their number being only USD 480 million, reflecting the lower average dollar value of the IPOs. In the comparison period Q1’22, some USD 2.2 billion was collected in IPOs (-78%).

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

Q1’23 was quiet in venture capital investments

The biotechnology venture capital market was quiet compared to previous quarters. The number of funding rounds fell to 130 (-43% vs. Q1’22). On average, the funding rounds were smaller than in the comparison period, which resulted in a higher drop in financing measured in dollars. The total value of venture capital investments during the period was USD 5.0 billion, corresponding to a 50% decrease from the year before.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

Signs of funding normalizing, even though IPOs are still rare

Global biotechnology funding sunk into a deep pit especially in Q1’22-Q3’22. We believe the main reason for the weakness is the overall decline in market risk tolerance, which has especially been reflected in the pricing of loss-making growth companies. In addition, the rise in inflation and interest rates that hit the financial markets in general especially affects companies whose expected cash flows lie far in the future. However, the financial market for biotechnology has shown clear signs of recovery in the last two quarters. When examining the last five years, the median funding for one quarter has been around USD 115 billion. Compared to this, the latest quarterly figure of USD 90 billion for Q1’23 is still a bit below the trend and we expect funding to continue recovering somewhat from the current level.

The low global IPO activity among biotechnology companies also reflects the strong decline in IPOs experienced on Nasdaq Helsinki after the record year 2021. It is difficult to predict the recovery of activity. In our opinion, a general increase in valuation levels could make listing a more interesting option for biotechnology companies that often need equity financing.