German life sciences heavyweight Evotec raised around €376M ($435M) in its US debut on the Nasdaq last week, fueling tentative hopes of renewed investor interest in biotech stocks after a rollercoaster year.
The company downsized its initial IPO target of around €500M ($576M) by offering fewer shares than initially planned. This is widely seen as a sign of the times, after many European biotech stocks dipped 10% or more in September alone on a flurry of factors including regulatory shifts and general uncertainty about inflation. Nevertheless, many observers hailed Evotec’s performance at the offering.
“It is a clear demonstration that the market is still open to high-quality companies, and Evotec is a compelling opportunity with a diversified platform of proprietary programs as well as capabilities leveraged through collaborations and deals with other companies,” said Stephan Christgau, co-founder and Managing Partner of Nordic VC firm Eir Ventures.
Evotec representatives were unavailable for comment on the IPO. In filings with the US Securities and Exchange Commission regulator, the company has said that it plans to use the proceeds to expand its manufacturing capacity, including in facilities in France and the US. Evotec has also earmarked cash for R&D, investments in other companies, and the development of precision medicine approaches.
The company’s unusually fluid business model — which involves a mixture of services, collaborative drug development, and investing — has often baffled observers. Yet in times of crisis it has also served as a hedge of sorts against unforeseen market fluctuations. Practically all of its approximately €245M net income for the first three quarters of this year comes from a successful investment in UK biotech Exscientia. Excientia is developing an artificial intelligence-powered drug discovery pipeline and had a spectacular Nasdaq debut of its own in September.
“I think [the Evotec IPO] is really having ripples,” said Lenny Van Steenhuyse, Equity Analyst Life Sciences at KBC Securities, in an October Twitter Spaces discussion arranged by Bertrand Delsuc, founder of Biotech Radar. “You have the service parts of Evotec, the CRO business, but that’s also combined in a hybrid business model where Evotec co-invests with its clients in the specific development of projects.”
“Also the company sometimes takes equity stakes in smaller companies and strikes technology development deals. So Evotec is really a Swiss army knife of drug development. I think that’s quite unique.”
Over the past year or so, Evotec has ventured into gene therapy by expanding its partnership with Takeda, has signed a deal to produce monoclonal antibodies that treat Covid-19, and has even launched a pandemic preparedness program.
“We never really had the ambition to invent something completely from scratch,” said Evotec CSO Cord Dohrmann at the Bio-Europe digital conference in October, in a session unrelated to its IPO. “We just said, ‘let’s apply what’s out there, but in an industrialized fashion, and really make it efficient and effective that way.’”
The US listing has nevertheless exposed differences in investor sentiment on both sides of the Atlantic, observers say.
“In a broad perspective, it is noteworthy that US institutional and general investors seem more receptive to compelling high-quality opportunities than their counterparts in Europe,” Christgau added. “One can only hope that, over time, there will be greater recognition of the potential and opportunity of biotech and life science among European general and institutional investors, enabling European markets to have IPOs of comparable size and performance to that of the Nasdaq in New York.
“However, the recent dynamics around IPOs and public financings have so far worked to further strengthen the Nasdaq as the pre-eminent market for public listing of life science companies.”
Cover image via Elena Resko