When the vultures circle – the biotech sector in a financing crisis
Published: Tuesday, Nov 21st 2023, 10:50
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First Kinarus, then Spexis - more and more Swiss biotech companies are finding the water so high that they have to file for bankruptcy. Evolva can be bought and Obseva's survival is also in the stars. Nevertheless, industry experts do not believe that a major wave of bankruptcies is imminent.
Rather, according to observers such as Nasri Nahas, CEO of Biopôle, a technopark and incubator for life science companies, it is a healthy selection based on "the principles of Darwinism". And even if the current environment is tough for biotech companies, a wave of bankruptcies is "not to be expected".
As a reminder, the coronavirus years 2020 and 2021 put the biotech sector in the spotlight with its contribution to combating the pandemic - not only in the media, but also on the financial markets. A veritable biotech boom broke out. Companies went public in droves and investors were prepared to invest large sums, as long as it was biotech.
Insufficient financial market maturity
"It is possible that companies whose financial market maturity was questionable also went public during this period," says healthcare analyst Thomas Heimann from HBM Partners Ltd. In fact, some companies dared to go public during this period, even though their pipeline candidates were still at a very early stage.
"People have always been fascinated by growth," says Biopôle CEO Nahas. "But there can be no such thing as continuous growth in any system." Companies and industries also go through cycles.
However, biotech investors generally need a lot of patience, especially if they invest at an early stage, until the first results are available in the form of clinical studies, says Heimann.
In principle, however, biotech investments pose a problem for "investors who want to see results as quickly as possible", says Heimann. This is not only because the individual clinical research stages often take years to deliver results. Rather, biotech is still "high-risk and statistically more programs are still unsuccessful than successful", adds life sciences expert Frederik Schmachtenberg from EY.
And in fact, according to the expert, in the Covid years 2020 and 2021, significantly more was invested in early-stage assets such as preclinical programs, although investors often prefer to invest in programs in late clinical stages, so-called "late stage assets". "However, the biotech sector is not always littered with such late-stage programs."
Hangover mood since fall 2021
So the hype was followed by a hangover. According to Michael Altorfer, CEO of the Swiss Biotech Association, the mood towards listed biotechs has changed since fall 2021 and has been poor ever since.
According to HBM analyst Heimann, however, it was ultimately only a matter of time before a consolidation occurred. This was ultimately reinforced by rising interest rates since last year. Other less risky investments became more attractive than biotech, for example, making it increasingly difficult for biotech companies to raise equity capital.
In Germany, listed companies Kinarus and Spexis have recently fallen victim to the changed environment. Both companies were unable to secure sufficient funding to finance their current programs. Evolva has thrown in the towel and is being taken over by the Canadian family business Lallemand. According to current plans, shareholders will receive a liquidation dividend of between 70 centimes and CHF 2.40 and the shares are to be delisted.
Obseva is also considered to be highly endangered and has only survived to this day thanks to the sale of numerous pipeline assets and a large-scale layoff of employees. Idorsia, the successor project of the Clozel couple, recently suffered a similar fate after they sold Actelion. Almost 500 employees, mainly from the research department, had to leave this year and candidates were sold.
Swiss market is different
For Altorfer from the Swiss Biotech Association, however, these companies represent the minority of the Swiss biotech sector. In Switzerland, around 98 percent of biotech companies are privately financed. "This currently offers a certain degree of protection against this difficult situation in the stock market environment."
The inflow of new capital in 2022 was also higher than in 2019 and comparable to 2018, Altorfer continued. Financing regularly takes place in the private sector. In the current year, one of these rounds had a volume of more than one billion Swiss francs, two were worth more than 100 million and many were in the single or double-digit million range. He also assumes that the total amount of financing will be as good or better than last year.
For analyst Heimann, the situation for private companies, particularly those in the later stages of development, is also somewhat easier. The first half of the year went relatively well in Switzerland, although some darker clouds have now risen in the third quarter. This is also due to the fact that investor funds are still available from private investors, venture capitalists and pharmaceutical companies and are still being invested, adds Schmachtenberg.
For the EY expert, Switzerland still has promising assets, and these assets usually find the capital they need, even if the search for fresh money can sometimes take a little longer.
©Keystone/SDA
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