European biotech stock woes continue but recovery hope remains

European biotech stocks continue to disappoint, with half of listed biotechs in the region having just 12 months of cash left. However, a recent report from Bryan, Garnier & Co sees a strong biotech venture capital scene and rallying stocks as reasons to be optimistic.

Biotech stocks have performed poorly in the last year as a result of a multitude of factors including inflation, geopolitical instability and the departure of so-called “tourist” investors from the space. This adverse environment has discouraged biotechs from listing, and forced many public companies to tighten their belts.

There are early signs of a recovery in progress, as the S&P Biotech index (XBI) — covering Nasdaq-listed biotechs with small-to-midsize market capitalizations — rose by around 30 percent in the last month. However, we’re a long way from returning to the XBI’s last high in February 2021.

The situation has been no different for European biotech stocks. According to a recent report from the investment bank Bryan, Garnier & Co, 93 percent of all public European biotech companies ended the first half of 2022 down in value compared to the start of the year. Some of the few exceptions included Oncopeptides, Vicore and Acticor. 

Around half of EU public biotech firms have less than 12 months of cash left as investors flock towards derisked, higher quality treatments from companies like argenx and Ascendis. This has led some big names to make tough choices to lower their cash burn, including MorphoSys licensing out two antibody drugs to Human Immunology Biosciences (HIBio) and Basilea cutting its oncology programs to focus on anti-infectives.

One noteworthy trend over the last year has been the relatively low levels of merger and acquisition activity by big pharma companies. This comes despite record amounts of cash in the big pharma coffers and low valuations for public biotech companies. This could indicate that big pharma isn’t driven only by the value of the asset, but also its fit in their existing business model.

Compared to 2021’s record-breaking haul, Europe’s private biotech funding rounds in early 2022 fell in both number and value. European private biotech funding in the first half of 2022 was around $2.8 billion compared to $4.3 billion in the same time period in 2021. Nonetheless, the overall activity is still very high compared to previous years, and the lower price of European investments may tempt more U.S. investors to pay for innovative ideas across the pond.

Another notable trend has been the increasing funds flowing into European venture capital (VC) firms. Recent examples include the takeover of Abingworth by Carlyle, the acquisition of LSP by EQT and a collaboration between Apollo and Sofinnova, not to mention new funds closed by Forbion, ARCH, Omega Funds and Cambridge Innovation Capital.

This continued success in the private investment side of the biotech industry indicates firms don’t need to list to stay well funded. Once they do reach the market, they might have a better infrastructure in place to thrive and keep their base in Europe.

“Basically, the big private equity firms want to pump more money into healthcare in Europe and are doing so through acquisitions or investing in VCs, which should ultimately lead to a more robust funding environment for biotech and medtech in the EU,” stated Alex Cogut, Head of Healthcare Research at Bryan, Garnier & Co. “I think this is a vivid indication of the interest of ‘generalists’ in investing in this space, despite all the doom and gloom in the public markets.”