Q2’23 subdued in biotechnology financing but there are signs of stabilization in the air

Translation: Original comment published in Finnish on 10/4/2023 at 6:58 am EEST

Q2’23 was quiet in terms of biotechnology financing after two stronger quarters. The difference is explained by the small number of mergers and acquisitions. The IPO market globally, and especially in Europe, has continued to be subdued. However, other funding channels, such as partnership agreements, are more stable and provide the basis for a recovery in IPOs in the future.

Quiet quarter in biotechnology financing for M&As and IPOs – other funding sources more stable

The total global funding of biotechnology companies was USD 46.6 billion in Q2’23, a decrease of 21% on the comparison quarter of the year before. This drop was mainly due to the absence of M&A transactions (-89%). Partnership agreements increased to USD 28.7 billion from the comparison period (+41%). Most sources of funding seem to have stabilized and the weak quarter may be explained by the fact that no large M&A transactions occurred in Q2’23.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

* Annual data divided equally by quarter before Q4’21.

** Investment in a company that is already in the investor’s portfolio

*** Private Investment in Public Equity

Number of IPOs and capital collected in them are still at a very low level

Globally, the number of biotechnology company IPOs was 6 in Q2’23. 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 at the highest (Q4’20). There were no IPOs in Europe. IPO activity was also low in North and South America (2 IPOs) and Asia (4). Funding raised in IPOs increased by 42.4% to USD 766 million. The sum is also very low compared to our reference period 2018-2023.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

Signs of stabilization in capital investments

The venture capital market in biotechnology can be seen as priming for future listings. The dollar value of venture capital investments decreased globally to USD 5.9 billion (-39%), depressed by the Asian market. The number of funding rounds also fell to 136 (-26%). 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.

Source: BCIQ BioCentury Online Intelligence; Nature Biotechnology

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. However, the financial market for biotechnology has shown signs of stabilization. When examining the last five years, the median funding for one quarter has been around USD 101 billion. Compared to this, the USD 47 billion in the latest Q2’23 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.