By Sarah MacLeod on 16/12/2022
2022 has been a challenging year for healthcare and life sciences companies, as public markets continue to punish biotechnology stocks. Over the course of the year, we have already seen several false dawns of imminent improvement, only for the markets to respond yet more despondently.
After peaking in the second quarter of 2021 with exceptional fundraising success, the subsequent selloff and capital flight has been indiscriminate. Often, sound companies with promising product pipelines have found themselves in the crosshairs.
The biotechnology focused XBI index has been consistently and significantly lower than the S&P 500. Many listed companies have traded at a market cap less than their cash holdings. The silver lining for promising companies was that many of them had raised enough cash in the preceding boom years to see through the downturn.
In a high interest rate environment, investors and money managers are not in a hurry to put their cash into biotech and companies have had to find new ways to entice investors by outlining a vision of superior returns. Whilst investment in life sciences has the potential for incomparable returns, communicating this to investors has required patience and determination.
As we head into 2023, there are some green shoots of hope. Well-run companies with positive trial data have been able to raise money. Investors are seeing opportunities in low valuations and depressed valuations are perceived as appealing. As appetite improves, biotech companies and VCs will have a huge task in communicating their investment case.
Biotechs can take solace from the fact that big pharma is sitting on a half a trillion dollar cash pile which needs to deployed as patents on existing products expire, but a multitude of economic and geopolitical headwinds will remain risk factors. By the middle of 2023 however, we may well see a turnaround.
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