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Stock markets worldwide have experienced painful instability in the last few months. As a result, the European biotech market has seen stock prices falling and IPOs postponed. The Covid-19 pandemic was a major disruption for stock markets across the globe at the start of 2020. However, markets like Euronext and the tech-focused Nasdaq rallied and even flourished in late 2020, with biotech companies getting swept up in the excitement. In February 2021, this hype came to a grinding halt as major stock markets were hit by a stock price drop of 10% or more -- a phenomenon known as a correction. This was also visible in biotech stock indices on both sides of the Atlantic including Euronext’s Next Biotech Index and the Nasdaq Biotech Index, which monitor the performance of multiple biotech company stock prices. While these biotech indices stabilized somewhat in March and April, early May saw another noticeable drop. “After a stellar 2020 ... it seems fair that the sector takes a breath,” said Bertrand Delsuc, CEO and founder of the business intelligence firm Biotech Radar. The roaring IPO market of the past year has also been hit. Some IPOs have underperformed, like in the case of Vera Therapeutics, whose offering failed to meet its target price. Earlier this month, the UK company Gyroscope Therapeutics even postponed an IPO on the Nasdaq. “Many specialist funds are down considerably this year, which dampens IPO appetite as investors become more portfolio- and active position-minded,” said Dylan van Haaften, Equity Research Analyst at the investment bank Bryan, Garnier & Co. On the other hand, a number of star fundraisings on the Nasdaq recently bucked the trend. Early this month, the French vaccine company Valneva went public with a €77.9M ($93.5M) fundraise and last week saw a €1.2B ($1.4B) IPO by the Swedish dairy alternative company Oatly. A great part of the market uncertainty stems from broad macroeconomic factors like inflation fears in the US, which affect markets around the world. "Inflation pressures are going to be rising, and they're not going to be temporary," said Jeremy Gatto, Investment Manager at Unigestion, in an article by Reuters this month. "What does that mean? Effectively that [interest] rates will be rising." There are also concerns specific to the biotech and pharma industries at play. For example, drug pricing debates by US lawmakers are causing worry for the bottom line of many companies. Additionally, the fear of tighter regulatory controls on drug approvals and M&A deals is in the air. “The sector was reassured by the approval of Alexion’s acquisition by AstraZeneca, but what about other transactions?” said Delsuc. “Smaller caps seem to have reacted negatively on this point.” Unsurprisingly, some companies are seeing steeper stock drops than others. The Belgian-Dutch player Galapagos was one notable casualty -- a company that last year earned an EMA approval of its lead candidate, but also a string of bad luck, including a rejection by the FDA and the clinical failure of a different drug program. In the last few weeks, one of Galapagos’ prominent US investors, Capital Group Companies, also sold off shares in the company. “Capital Group Companies totally exited [Galapagos],” said Delsuc. “When such an event occurs, it hurts a lot.” The Danish company Genmab, whose partner Novartis recently received EMA approval for their multiple sclerosis drug Kesimpta, also saw a rough quarter. Its earnings were hit by a royalties dispute with Johnson & Johnson over the blood cancer drug Darzalex Faspro. Meanwhile, the stock price of the Dutch heavyweight argenx is being rocked by several challenges. For example, the company is navigating the daunting task of launching its first drug: efgartigimod, which is awaiting FDA approval for myasthenia gravis. In addition, argenx would likely have the launch complicated by the pandemic. At the same time, some companies are emerging relatively unscathed. One is Evotec in Germany, whose business model is more diversified than those of many biotech companies. Another is compatriot firm BioNTech, whose promising revenues from its Pfizer-partnered Covid-19 vaccine have catapulted its stock price in the last few months. Macro market conditions aren’t the only factor in some of these biotech stock price troubles. For instance, bad press has struck the gene therapy field in the form of safety scares in the last several months. In the case of uniQure in the Netherlands and bluebird bio in the US, gene therapy trials were paused to investigate cancer cases in a few patients. A trial of a Parkinson’s disease gene therapy developed by the US players Voyager Therapeutics and Neurocrine Biosciences was halted by the FDA in December after MRI abnormalities were found in some patients, leading Neurocrine to pull out of that part of the collaboration. Most recently, the US company Adverum Biotechnologies reported that a patient went blind in one eye after being injected with its experimental treatment for diabetic macular edema in a phase II trial. For Gyroscope Therapeutics, which is also developing a gene therapy for a blindness disorder, this environment would provide a disincentive to list right now. “This newsflow is likely to be the principal contributor to why [Gyroscope’s] IPO was pulled,” said van Haaften. “Furthermore, we have seen gene therapy valuations come down considerably, so perhaps Gyroscope is better off IPOing at a more opportune time.” While it’s impossible to predict when biotech stock prices will recover, corrections last on average for several months. A similar rough patch of falling stocks and delayed IPOs struck the Nasdaq between October and December 2018, before the market rebounded. “Public market investors in biotech had a few good years with solid appreciation across the board," said van Haaften."The recent volatility is macro-driven and everyone is dealing with it.” The outcome depends on a whole range of factors. Companies in countries that are beginning to open up from lockdowns may recover faster; the EU’s recovery could be slowed by a sluggish start to its vaccination rollout. And the drug pricing discussions in the US will continue to influence stock prices. A major sign of ongoing investor confidence in the biotech sector is high-profile mergers of biotechs with Special Purpose Acquisition Companies (SPACs), which are shell companies formed to allow an existing firm to go public without an IPO. One example this month was a merger between the US synbio player Ginkgo Bioworks and the SPAC Soaring Eagle Acquisition Corp, which valued Ginkgo at €14.6B ($17.8B). “I would say certain recent SPAC deals like Soaring Eagle and Ginkgo Bioworks are a more fundamental gauge of sentiment at this stage, as this reflects the immense appetite of more generalist capital for secular growth healthcare plays,” said van Haaften. In terms of the broader macro factors, such as rising interest rates, the healthcare sector is often less affected than other sectors, and for a shorter time. Therefore, according to van Haaften, companies should be aware of the current stock market situation, but not alarmed. Cover image from Anastasiia Slynko.

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