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Market uncertainty and development setbacks weigh on public markets

16/11/2011

"Times are challenging but also create opportunity from a fundamental investment perspective", Jan De Kerpel, KBC Securities

 

 

Since our last update in September, the volatility and nervousness in the financial markets have not eased.

Year to date, the global biotech industry raised € 30.2bn (versus € 26.7bn in 2010) of which a big amount is in debt (€ 22.3bn). The biggest chunk of debt is taken by companies such as Amgen (raised $ 5bn in a convertible bond note last week), and almost double the amount raised in the same period in 2010 (€ 13.0bn).

The public markets in the Benelux and Europe are still very wary of biotech funding. In the US, the market shows signs of opening up, with several companies having successfully refinanced. In recent weeks, some small pharma/biotech IPOs have succeeded in the US and larger SEC-filings have been submitted. An opening of the US financial market should be a positive signal for the European markets, so it will be interesting to see if the early US signs will materialize into a stronger trend. Year to date, € 4.0bn has been raised via public fundraising (IPO, follow-on, PIPE). This is at the same level as last year, but much smaller when compared to the debt raising.

Market sentiment is still dominated by macroeconomic and euro concerns. In the current climate, only companies that substantially outperform expectations can count on a reward on the market, but most of those who meet expectations and definitely those who underperform are severely punished.

In Belgium, several biotechs could strengthen their balances with cash inflows. Tigenix secured a € 4.9m soft loan to support the development of its phase III inflammation project Cx601 and its share price soared on renewed interest from the investment community. Galapagos enjoyed a cash upfront payment from a new alliance with existing partner Servier, and the company recently reiterated its 2011 financial guidance for very strong cash inflows before year-end. Another stock-triggering event could be the announcement of the phase II results of its lead rheumatoid arthritis project in the coming week. Ablynx also enjoyed a massive upfront (€ 20m) payment by closing a co-discover/development agreement with existing partner Merck-Serono. However, Ablynx has had a rough ride in recent weeks. First, Pfizer returned the rights of the phase II positive TNF-alpha program and only one week later, the company reported that its lead product ALX-0081 for thrombosis did not meet the primary endpoint in the phase II study in acute coronary syndrome patients. While neither the Pfizer nor the ALX-0081 news came as a big surprise, the market sent the stock down by 35%, on top of the 40% decline since September.

Overall, the aggregated market capitalization of Belgian public biotech, excluding UCB, now represents close to € 1bn, down by 39% year to date. This compares to the Bel20, which is down by 22% year to date.

 

 

Thus, times are challenging but also create opportunity from a fundamental investment perspective. Moreover, Belgian public biotech companies are well-financed to weather the storm.

Source: Jan De Kerpel, KBC Securities