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Lab Rats: High-capex biotechs turn to public markets for cap raises

Advancing the science of healthcare and biotechnology is not only a long, complicated pursuit; it is also expensive. No one knows this better than firms increasingly tapping equity market for new capital around research development and product launches.

Last week, Dutch biopharma giant Argenx [NASDAQ/EBR:ARGX] completed a USD 1.27bn primary follow-on consisting of a sale of American Depository Receipts on the US Nasdaq and ordinary shares sold on Euronext Brussels. The deal was almost the sole contributor to the USD 1.5bn of European ECM volume from 15 deals; most of the transaction was sold to US investors through the ADR sale.

Other firms are expected to follow suit as they enter critical stages of their growth roadmap, one ECM banker noted, and are ready to tap into investor enthusiasm around the sector.

According to Dealogic, biotech has provided a bonanza of follow-on activity over the years.

So far in 2023, there has already been USD 3.2bn of follow-on activity from European bio-tech firms, including on non-European exchanges, more than the entire 2022 USD 2.6bn. In 2020 and 2021 European bio-tech issuance hit heights of USD 7.7bn and USD 5.8bn in follow-ons comprising over 30 deals, although this was driven by a focus on the sector during the Covid-19 pandemic. Convertible issuance has been less pronounced, with only 2020 pushing through the billion dollar mark.

An ECM banker noted that it is not surprising to see these companies coming to market, hungry for new funds given the cash burn involved in organising trials, moving products through various research phases while managing day to day expenses.

A sector banker noted: “Biotech is a space where the inflection points are much more obvious than other sectors because trials are clear data points. Capital is so crucial to getting to that next inflection point because trials are expensive.”

Companies that have not reached those inflection points might see round extensions from existing investors instead of trying to go for an IPO, given new investors are showing lower risk appetite owing to regulatory headwinds for medical devices and no clear timeline on go-to-market strategy, he added.

But companies that are too late stages for VC but too early for PE investors might turn to listings.

Imcyse, a Belgian biotech company, will revisit its Nasdaq IPO in 2024, as reported, and boasts a score of 60 out of 100 according to Mergermarket's Likely to Issue* predictive exit algorithm.

French clinical stage biotech ENYO Pharma, which has an LTI score of 63 and raised EUR 40m Series B in 2018, could also be ripe for the public markets after previous rounds of private funding.

Danish biotech company Tetra Pharm Technologies plans to mandate advisors within the next six months ahead of an initial public offering (IPO) in 2025.

Noema Pharma, a Swiss biotech company targeting central nervous system (CNS) disorders, is weighing whether to raise a Series C round or explore an IPO and will use its next round of funding to finance Phase III studies of its lead assets.

From primary IPO issuance to frequent capital raises, the sector is in rude health.

*Dealogic’s LTI predictive analytics assign a score to venture-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.

Analytics by Raj Saiya