After a massive boom in venture capital investments in biotech in 2021, and a series of initial public offerings (IPOS) and acquisitions that promised much but eventually delivered relatively little, 2022 saw a major market readjustment in the valuation of companies in the sector, both public and private. The Nasdaq biotechnology index has fallen 28 per cent since reaching an all-time peak in early September 2021, and the S&P XBI, an index of smaller companies, has fallen by 41 per cent since its own peak that November.
All in all, it looks like a difficult time for biotech and investors in it. However, several companies have bucked this trend and it looks like a (cautious) recovery is on the way: one that will benefit only companies that fit the right profile for investors. Some $5.2 billion was raised in follow-on funds by biotech companies in the third quarter of 2022, more than the first and second quarters combined, according to the FT.
So, what are investors looking for, and who is set to benefit from the improving climate?
The first must-have is new, promising clinical data, says Nicole Junkermann, the international investor and founder of NJF Capital, who has invested in nine biotech companies including multi-asset longevity biotech Cambrian Biopharma. “It’s essential to look beyond the hype around certain companies and dig into the data coming out of clinical trials,” Junkermann explains. “Companies that promise the world but can’t deliver the technology they claim to be developing are ten a penny in the sector. Look for good results from human trials to make sure that development is on the right track.”
A second major factor to consider is the likelihood of regulatory approval, says Nicole. “Even the best idea and the most promising non-human trials can be derailed if it’s impossible to prove that something is safe.” Ironically, this can sometimes lead to a catch-22: if you can’t prove something is safe, you can’t carry out long-term human trials. if you can’t carry out human trials, then it’s very difficult to prove definitively that something is safe. This, says Nicole, is essential to keep in mind when choosing where (and indeed whether) to invest in biotech.
