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Please find attached an update on the biopharma market for the week of April 1, 2024.
Q1 just ended last week so we will be spending much of this issue looking at biotech conditions overall and comparing them to what was happening in 2023.
Macro and Biotechnology Market
We were thrilled to see a 2.5% U.S. PCE inflation number hit last Friday while the market was closed.
The PCE price tracker is the Fed’s preferred inflation indicator, and the latest data shows a steady downward inflation trend which portends rate cuts to come.
Long bond rates also came down last week and the XBI is now at a post-Pandemic normalized level.
While the last month’s biotech market has been flat, we are expecting a positive direction to continue developing in light of the positive macro news.
Last week saw the XBI rise by 1.4%. The XBI was up 6.3% in Q1 2024. Our measure of the total biotech market value was up 2.3% last week and up a whopping 30% for the quarter.
The XBI includes many commercial pharmas and diagnostic companies and thus tends not to fully reflect the direction state of R&D stage biotech companies.
The average value of a Phase 3 biotech today is $967 million. This compares to $1.36 billion 27 months ago (at the height of the market).
In contrast, the average preclinical company value today of $237 million is less than of its value of $511 million 27 months ago.
The post-Pandemic downturn tilted the market towards later stage biotech stories.
Interestingly, this year’s market recovery has been strongest for early-stage biotech companies, partly explaining the big gap between XBI performance and total biotech market performance.
This has not been the historic norm. Traditionally, later stage, larger biotechs have recovered first only to be followed much later by a small cap stock recovery.
Companies with very good data have traded at eight to ten times the value of companies with a good dataset throughout the Pandemic recovery period.
In 2024 we have seen a strong recovery in value of companies with less than “very good” data.
The ratio of the average value of a biotech company with a “very good” to “good” dataset has shrunk from 11x last October to 5.6x at the close of Q1 2024.
The quality premium is clearly shrinking fast.
We view this as an important sign of market normalization as it indicates that portfolio managers are increasingly willing to take longer-term bets, playing the actuarial odds of drug success in the clinic as opposed to simply betting on the next M&A deal by piling into whichever stock has a great dataset today.
Another important sign of market normalization is the rapid disappearance of negative enterprise value biotech companies.
Despite the flattish market, investors are continuing to buy up companies with negative enterprise values. The count of negative EV life sciences companies worldwide fell from 135 from 123 last week. This is the lowest level since January 2022.
Last week saw the life sciences sector gain $86 billion in value. The best performing sectors were biotech, diagnostics and medical devices. The API sector, OTC and life science tools all lost 1% or more in aggregate value.
Q1 subsector performance in the life sciences field was far from uniform. Generic pharma, biotech and big pharma have performed best so far in 2024 while animal health, HCIT, China, pharma services and API have all underperformed.
The pressures on Wuxi have impacted the pharma services segment.
We then looked at life sciences sector companies that either gained $10bn or lost $10bn in market cap in Q1. There were only sixteen such companies out of over two thousand that we track.
Lilly gained $176.5 billion in market cap in Q1 while Novo gained $109 billion. No one else was close and the obesity story continues to dominate the industry this year.
Merck was up $58 billion on sotatercept approval and pipeline progress.
AbbVie performed well on excellent earnings and progress in its immunology portfolio.
Roche lost value on a disappointing outlook. In general, the major players in medical devices performed well based on strong 2023 earnings and excellent outlooks. Wuxi was negatively impacted by pressure from U.S. Congress and China geopolitics.
Biotech Balance Sheet Condition and Capital Inflows
Q1 2024 was an excellent time for capital formation in the biopharma sector. Overall capital raised in 2024 is up 49% versus 2023.
Venture private volumes in Q1 2024 were flat versus 2023. Follow-on activity was up 116% relative to 2023 and IPO activity was up 122%. Private debt volume was down 26%.
Forty companies of the top 500 biotechs raised $12.1 billion in Q1. Seventy-five other companies raised another $4.9 billion. The remainder did not bring in fresh capital during the quarter.
The effect of the capital market reopening has, obviously, been quite concentrated in its effect.
If one looks at all 815 public biotech companies worldwide, 43% have less than a year of cash.
On the other hand, there are far more today with three years or more cash than six months ago.
The biotech world is very much divided into have and have nots.
Lest the situation sound like the market has become broken in some way, we thought it would be interesting to look at cash positions by market cap.
We know from the analysis above that companies with good pipelines have much higher market caps.
Does this make a difference from a balance sheet perspective?
We found that as of last week’s market close, two thirds of companies with market caps under $100 million have less than a year of remaining burn.
In contrast, only three percent of companies with more than a billion in market cap have less than a year of burn on the balance sheet.
By and large, the market is directing cash to companies that have the most tangible promise to get drugs approved.
While we hesitate to say the market is fully rational, there is clearly a logic to who is getting capital inflows in 2024.
As of the start of 2024, the median global top 500 biotech had 1.9 years of remaining burn in the bank.
We estimate that due to capital inflows that this has risen to 2.0 years today.
Compare this to only 1.5 years of burn in the bank held by the median biotech just six months earlier.
Biotech balance sheets are in a better place today than at the start of the year.
The total net cash held by the top 500 biotechs has recovered from $70 billion as of June 30, 2022 to $82 billion as of April 1, 2024.
While the reopening of the capital markets has obviously helped matters, biotech balance sheet conditions are still nowhere near where they were at the peak of the Pandemic.
The number of biotechs with more than $100 million in net cash has shrunk since June 2023. But the number with more than $300 million in net cash has risen. The reopening of the capital markets has resulted in relatively large raises for companies with the strongest stories.
Biotechs have not restrained spend, on average, in recent years.
The number of companies burning over $100 million a year is at an all-time high as of the latest financial reporting period.
We suspect that this reflects higher labor costs, higher costs of laboratory tools and supplies and an increasing cost of carrying out clinical trials.
Capital Markets Update
IPO activity has picked up rather substantially in 2024 compared to the “drought years” of 2022 and 2023. The dollar volume of Q1 IPO activity was up 105% versus what we saw in 2023.
To be clear, this was helped in large part by including Galderma’s $2.3 billion IPO this year.
The IPO market recovery mirrors the pickup in market conditions. The buyside remains selective at this point so, while reopened, the IPO market is not operating with the same vigor seen in 2020 and 2021.
The median valuation step-up in IPO’s in Q1 was 1.5X the last private round post-money. IPOs have, in general, performed well in the aftermarket in 2024.
Last week saw Boundless Bio go public on the Nasdaq and raise $100 million.
We salute the team and like the company’s novel approach to oncology drug development.
The pace of equity follow-ons in 2024 has been the same as we saw in 2021 and is close to the all-time record set at the peak of the Pandemic in 2020.
Equity follow-on volume in Q1 2024 was up a whopping 113% over 2023 levels.
This year is shaping up to be the third strongest for equity follow-on offerings in the history of the biopharmaceutical sector.
Last week saw $1 billion in registered follow-on offerings and PIPEs get done. In total, we count $19.3 billion in total follow-on volume for Q1 2024.
We saw $3 billion in venture private raises last month. This was slightly above the average issuance level of $2.8 billion that has been seen for the last 17 months.
Overall, despite the strong public markets for equities, the pace of venture raises in 2024 has not increased from 2023. Venture investors remain quite restrained in their outlays this year. This is, in part, a reflection of a worsened environment for raising LP capital into venture funds.
Last week’s largest private deal was by Avenzo who raised $150 million to bolster an impressive emerging oncology biotech story.
The debt privates market saw a $750 million project financing completed by Moderna with Blackstone last week.
M&A and Licensing Update
With $21.8 billion in deals in Q1 2024 we are on track for the lightest M&A volume year in a decade.
M&A volume in 2024 is down 51% versus the level seen in 2023.
There simply have not been transactions of the scale seen in 2023.
The largest M&A transaction announced in Q1 2024 was Gilead’s $4.2 billion purchase of CymaBay. The next largest was Novartis’ $2.8 billion purchase of Morphosys. By contrast, March of last year saw Pfizer announce its acquisition of Seagen for $43 billion.
Recent history would suggest that Q1 2024 was anomalous, and we expect to see higher volumes emerge this year.
On the cautionary side, it’s an election year in the U.S. and large pharma most likely thinks this is not the time to give the FTC anti-pharma ammo going into November. Further, pharmas we talk to indicate that biotechs have not adjusted down premia asks despite the market recovery.
The largest deals last week were Novo Nordisk’s acquisition of Cardior and AbbVie’s acquisition of Landos Biopharma.
Last week saw Nuvation Bio acquire AnHeart Therapeutics for $107 million in stock.
Last week saw Avalo Therapeutics acquire AlmataBio, which has a Phase 2 anti-IL-1ß mAb candidate for treatment of hidradenitis suppurativa.
Avalo announced a private placement $185 million structured with an upfront investment of $115.6 million and an additional $69.4 million in warrants. Shares of Avalo surged on the announcement giving Avalo an implied market cap of over $750 million at market close on Thursday (assuming the warrants are exercised).
Stifel was pleased to advise Avalo on its restart transaction with Almata.
Gilead Sciences is licensing Xilio Therapeutics’ XTX301, a tumor-activated IL-12, and XTX101, a tumor-activated, Fc-enhanced CTLA-4 inhibitor, for $43.5 million upfront, including $30 million in cash and a $13.5 million equity investment in Xilio.
Also, Juvise Pharma acquired the ex-North American rights to Actelion’s Ponvory.
Gamida Cell was taken private by its lender Highbridge to cure its debt default.
A story by Brian Gormley in the Wall Street Journal last week highlighted the recent surge of earlier stage M&A deals:
“Mergers and acquisitions of venture-backed drug developers are starting to rebound following a relatively slow period in 2023, brightening the outlook for venture capitalists seeking to cash out of biotechnology investments. From the start of the year through March 18, four private venture-backed biotech companies globally closed merger deals in which at least $75 million was paid up front, according to Silicon Valley Bank. That compares with two during the same period of 2023.”
Industry News
FDA Approvals Last Week
The FDA approved Merck’s Sotatercept last week. Called Winrevair, the drug is the first treatment that targets the underlying causes of pulmonary arterial hypertension, which normally leads to a relatively rapid death.
This drug has substantial promise as a cardiovascular drug for Merck. With, 40,000 PAH patients in the U.S. alone, this is a rare disease drug. With an annual cost over $200,000 per patient, there is an $8 billion market opportunity just for the U.S. market.
Merck’s $11.5 billion acquisition of Acceleron has been its biggest strategic move in recent years. Last week, Rob Davis, CEO of Merck was quoted in the Wall Street Journal as saying:
“We see this as a multibillion-dollar potential opportunity for the company. Over time we think we can move into earlier lines of therapy and potentially into much broader patient populations.”
The Winrevair approval is one of the most important of 2024 and certainly one of the most important in Merck’s history.
We’d note that Gossamer Bio is now enrolling a Phase 3 study of Seralutinib, a competitive molecule, for PAH and is working to develop a differentiated label.
Merck’s approval highlights the growing importance of rare disease drugs for large pharma. We share an analysis from PharmaSights which notes that rare disease drugs in large pharma sold $28 billion in 2023, led by Alexion, Pfizer and Sanofi.
Last week also saw the FDA approve vadadustat, a HIF-2 inhibitor from Akebia. This drug has been a long time coming, having been developed by P&G Pharma over 20 years ago. This drug has been approved for the treatment of anemia in patients with dialysis.
We congratulate Akebia and its many hard-working employees for staying the course to get this approval.
China CDF Conference
Last week saw many big pharma CEOs gather in China at the 2024 CDF conference.
The CEOs were largely supportive of China as a drug development locale despite recent negative publicity sparked by the BIOSECURE Act in the U.S. Congress.
Despite the sentiment’s held in some quarters and obvious geopolitical tensions between the U.S. and China, it was obvious last week that the pharma sector has been, is, and will be committed to delivering quality medicines to the Chinese people.
The Passing of a Pharma Giant
Former Pharmacia R&D Head, Phil Needleman, passed away last week. An obituary in the St. Louis Jewish Light noted:
“Starting out as a cross-eyed troublemaker in Brooklyn, Phil Needleman rose to international prominence for his world-class research in the academic world, in industry and in shaping future scientific innovation. His research at Washington University and later in industry had a major impact on four important areas of scientific knowledge and patient care, improving the daily health and quality of life of millions of patients. Scientifically, he was best known for Celebrex—both discovering the mechanism in his laboratory at Washington University and developing the drug Celebrex as Chief Scientist at Pharmacia, a drug that is used daily by millions of patients. However, he was even more proud of other scientific achievements, especially discovering and elucidating an endocrine system that is characterized by the heart communicating with the kidneys, influencing blood pressure.”
Phil was best known for his Ten Commandments of drug development. As enshrined over a decade ago by Bruce Booth of Atlas in a blog post, Needleman combined observations on the scientific method with practical economic advice for getting drugs approved in an efficient manner.
Phil adhered to these rules of drug development starting in the 1990s.
Some of his key commandments were:
- “Phenomenology is very different than pharmacology”. Only take drugs into patients where you know the MOA.
- “Define and do the killer experiments”. “you need ice in your veins – if a killer experiment doesn’t work then kill the program”.
- “Find the shortest route to heaven”. In discovery, don’t spend years doing every preclinical pharmacology model – do a few, not half-a-dozen or more – and then with confidence sprint quickly to the drug’s PoC in patients.
- “I’m from Missouri… show me data”. As he says, “the coinage of the realm is data” so spare the hand-waving talk, wordy powerpoints, and show the data, “gleamed both at the bench but also occasionally in hard-nosed reviews with experts”.
We had the pleasure of spending a few hours with Phil Needleman in January 2024 at WashU St. Louis. He spoke to us on many scientific topics including his new center at WashU to fund scientists who wished to conduct “killer experiments” related to disease hypotheses. He was an active, curious and engaged 85-year-old man.
One topic that came up included his view of the importance of ApoE variants in Alzheimer’s disease. Dr. Needleman’s thought was that the APoE theory of AD is the best developed one from the perspective of genetic evidence and warrants a real “killer experiment”. He was aware that Lexeo is conducting clinical trials in the area and was looking forward to seeing the results.
Another topic of lifelong interest was the arachidonic acid pathway. As a key inventor of celecoxib, Phil took his Celebrex® every day and felt that the pharmacologic potential of this area of biology has yet to be fully interrogated. He discussed overlooked opportunities in our most recent meeting. We, ourselves, are looking forward to seeing progress from drugs under development in the AA area from companies like Amgen.
Needleman trained generations of scientists and clinicians in academia and industry on the principles of pharmacology and was quick to share lessons on life and on how to make the biggest impact from the bench. His impact on our industry was profound and wide.
Phil was a giant, a titan, a game-changer and big thinker, the penultimate mentor to many; an extraordinary American success story.
Throughout his life he exhibited decency, wisdom, kindness and trustworthiness. No one will never forget his smile, his warmth and insatiable curiosity.
He will be missed by many.
Scientific Publication Last Week on Aging
A striking paper from Irv Weissman’s lab at Stanford came out in Nature last week. This paper showed that the immune system of an aging mouse could be rejuvenated by removing certain myeloid cell populations.
Heidi Leford summarized the paper as follows:
“The Weissman team tested this by generating antibodies that bind to the blood stem cells that predominantly generate innate immune cells. They then infused these antibodies into older mice, hoping that the immune system would destroy the stem cells bound by the antibodies. The antibody treatment rejuvenated the immune systems of the treated mice. They had a stronger reaction to vaccination, and were better able to fend off viral infection, than older mice that had not received the treatment. The treated mice also produced lower levels of proteins associated with inflammation than did old, untreated mice. Weissman says that his team is working on a similar approach to rebalance aged human blood stem cells. But even assuming ample funding and no unexpected setbacks, it will be at least three to five years before they can begin testing it in people, he says.”
There has been increasing interest in recent years in senolytics that might reverse aging in some way.
There has been progress on several fronts including the role of autophagy and aging and the role of Yamanaka factors.
The recent paper by Corina Amor of Cold Spring Harbor Lab in Nature Aging on using CAR-t against aging related metabolic dysfunction was impressive.
And now, the recent data from Irv Weissman’s lab are quite striking.
The Weissman Lab story is elegant in its simplicity.
In totality, we are starting to see a real body of evidence that certain aspects of aging might be reversible with pharmacologic interventions.
Fingers crossed.
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