Biotech and healthcare IPOs at Nasdaq

Advisory Intelligence: ‘Deals and Data’ Are the Heartbeat of Biotech

Advisory Intelligence: ‘Deals and Data’ Are the Heartbeat of Biotech

Jeff Larocque, senior biotech analyst with Nasdaq IR Intelligence, discusses the outlook of the biotech sector 

For companies in the biotech sector, 2021 is off to a fast start as capital raising among new issuers crossed $6.1 billion as of June 1. The U.S. market has welcomed 45 new biotech listings in the first five months of the year, a staggering increase of 200% against the same period in 2020.

However, following months of relative outperformance last year, the biotech sector may face some uncertainty in the coming months, says Jeff Larocque, senior biotech analyst at Nasdaq IR Intelligence.

The Nasdaq Biotech Index reached an all-time high in early February 2021, following the outperformance of biotech, gene editing and therapeutics companies during 2020. But February’s market correction, coupled with uncertainty around the actions of the FTC and a backlog at the FDA, could cause a slowdown in the coming months.

"Biotech was a quick sell in February as investors were concerned that some of these biotech firms would be crunched and may struggle to continue to grow," Larocque says. "The heartbeat of biotech is deals and data. Those two things fuel the industry. If you see that start to scale back, it could be a reason for investors to take their foot off the pedal."

In March 2021, the FTC announced the formation of a cross-border working group – along with the Canadian Competition Bureau, the European Commission Directorate General for Competition, the U.K.’s Competition and Markets Authority, the U.S. Department of Justice Antitrust Division and the Offices of State Attorneys General – to update their approach to analyzing pharmaceutical mergers.

It’s broadly anticipated that during the Biden Administration, the FTC will take a tougher stance on pharmaceutical mergers, which will have a knock-on effect on investor enthusiasm for biotech companies. Larocque points to the FTC’s recent efforts to block Illumina’s acquisition of Grail, on the grounds that it could reduce competition in the market, as a potential sign of things to come.

"The FTC likes to create a competitive landscape by keeping a level playing field," Larocque says. "We know that there’s going to be more scrutiny on deals in the future, and that’s going to keep some of the event-driven investors on the sidelines."

Despite the concern around how active the FTC may be in the future, Larocque says that February’s market correction could play into the hands of some large pharma companies. "Since mid-February, prices have been under pressure, and this might be the window for large-cap pharma to look for value – even if they take more of a critical approach to the names that they pick up than they would have done before."

Elsewhere in the federal government, the backlog of drug approvals by the FDA – caused by the inability of the authority to access facilities during the last year – could also cause some conservatism from investors.

In early May, the FDA announced that it is prioritizing mission-critical and domestic inspections for the next few months before returning to standard inspections later this year. If all goes to plan, it expects to have cleared 26 percent of its backlog of product inspections by October.

However, taking a broader view of the last 18 months is instructive, Larocque says. 2020 was "an incredible year" for the biotech sector, with "big investors" taking an interest in the sector and participating in capital raises. Coupled with the enthusiasm of retail investors around the development of the mRNA technology – which has been so influential in providing the technology for the Moderna and Pfizer Covid-19 vaccines – there’s plenty for biotech executives still to feel optimistic about.

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