Big Pharma not Likely to Bail Out Battered Biotech Industry
Battered by a struggling stock market and inflation, the biotech industry has been looking for multiple sources of financing, including the potential sale of net operating loss carryforwards. There has also been speculation that big pharma and its millions upon millions of dollars set aside for M&A may come to the rescue.
But a recent report suggests that’s not likely to happen.
According to The Wall Street Journal, some biotech stocks have fallen so low that the companies are valued lower than the funds they have in the bank. That’s not good when it comes to trying to raise capital for R&D or other business needs.
There has been speculation that the pharmaceutical industry could flex its M&A muscle and snap up some of these struggling companies. In theory, the suggestion is a good one for pharma companies that are facing a patent cliff for revenue-driving assets. But an analysis of the industry suggests that theory won’t play out given the state of the global economy.
As an example, WSJ pointed to Sio Gene Therapies, which terminated a licensing deal related to two gene therapies with the University of Massachusetts earlier this year. As BioSpace reported at the time, the company said it was “exploring strategic options” in order to “maximize shareholder value.” As expected, shares plunged following that announcement.
In fact, shares of Sio Gene are down more than 73% since the beginning of the year. Shares are trading at $0.38 per share as of this morning. WSJ noted that Sio Gene’s market capitalization is $27 million, despite the fact that it had $65 million in the bank as of the end of the first quarter. Because of its financial struggles, Sio Gene announced in April that it was looking at multiple options, including the sale of the company or a merger with a larger company.
Sio Gene is only one example. WSJ's report notes that some of the biotechs that have seen their values decline significantly have no real revenue stream to support their own operations, meaning there could be a sell-off of assets in the near future as they try to remain afloat. For biotechs that are not in the clinic, or are just beginning clinical operations, the need for cash to continue operations will be strong.
The root of the biotech financial crisis, as WSJ explains, is the fact that many biotech companies quickly made their way to listing on the Nasdaq or other stock markets, hoping to reap the rewards of a biotech stock bubble. In 2021, 111 U.S. biotech companies were listed on the exchange. In 2020, the number was 91. WSJ noted many of those companies were still conducting preclinical work.
While these companies are waiting for a financial savior of some sort, for now, WSJ said big pharma is not ready to enter into a feeding frenzy to bail them out. At the same time, some more established biotechs that are trading at what WSJ called “bargain prices” have been appetizing for some companies, particularly those that have strong science and are seen as a strategic fit. For example, France-based Ipsen snapped up Epizyme for $247 million in order to bolster its oncology portfolio. Likewise, Bristol Myers Squibb acquired Turning Point Therapeutics and its experimental lung cancer drug for $4.1 billion.
Les Funtleyder, a healthcare investor at E Squared Capital Management, told WSJ that the biotech sector as a whole won’t rebound until the economy is more stable and the Federal Reserve is finished raising interest rates. And that timeline may not be until next year. Until then, the biotech industry will continue to be battered by the financial winds.