The biotechnology IPO market is still frozen

Translation: Original comment published in Finnish on 11/15/2023 at 7:16 am EET

In Q3'23, biotechnology funding continued on the subdued path (-7.4% vs. Q3’22) that began in 2022. Venture capitalist investments and partnership agreements are at relatively normal levels historically, but the IPO market is still in a recession, especially in Europe. However, other funding channels are more stable and provide the basis for a recovery in IPOs in the future. Nature Biotechnology publishes financial data for the industry.

Mergers and acquisitions explain most of the decrease from previous years

The total global funding of biotechnology companies was USD 56.4 billion in Q3’23, a decrease of 7.4% on the comparison quarter of the year before. This drop was mainly due to the drop in partnership agreements (-31%). Most funding sources seem to have stabilized and are roughly at pre-COVID pandemic levels measured in dollars. However, the value of M&As has fallen markedly, which is visible as a drop in total financing, particularly starting from Q1’22.

Number of IPOs and capital collected in them are still in a recession in Europe

Globally, the number of biotechnology company IPOs was 11 in Q3’23. The number remained the same as in the comparison period but is at a very low level compared to recent years. There were 48 IPOs in a quarter at the highest (Q4’20). There were no IPOs in Europe, and in the last six quarters there has only been one IPO. During the quarter, there were 7 IPOs in North and South America and 4 in Asia. Funding raised in IPOs increased by 51% to USD 1,396 million from the comparison period.

The number and value of venture capitalist investments were stabler

The venture capital market in biotechnology can be seen as priming for future IPOs. The dollar value of venture capitalist investments decreased globally to USD 6.3 billion (-6%), depressed by the Asian market. The number of funding rounds, on the other hand, rose to 165 (+6%). The number of funding rounds and the amount of funding raised seems to have stabilized at the 2018-2019 level after the more active Q2’20-Q2’22 period.

Signs of funding normalizing, even though IPOs are still rare

Global biotechnology funding sunk into a deep pit especially in Q1’22-Q3’22. We believe the main reason for the weakness is the overall decline in market risk tolerance, which has especially been reflected in the pricing of loss-making growth companies. In addition, the rise in inflation and interest rates that hit the financial markets in general especially affects companies whose expected cash flows lie far in the future. When examining the last five years, the median funding for one quarter has been around USD 99 billion. Compared to this, the USD 56 billion in the latest Q3’23 quarter is remarkably low, but this is mainly explained by the lack of major M&A transactions during that quarter.

The low IPO activity among biotechnology companies also reflects the strong decline in IPOs experienced on the Nordic stock exchanges after the record year 2021. It is difficult to predict the recovery of activity. In our opinion, a general increase in valuation levels could make listing a more interesting option for biotechnology companies that often need equity financing.