Life science companies require a cash infusion at least twice as big as that of 2018 to fund research and development at a time when investors remain skittish, according to a Bloomberg analysis.
The analysis suggests that over 100 biotech companies, including makers of oncology therapies and treatments for other life-threatening conditions, need to raise $7 billion to $8 billion this year, if not significantly more, to sustain research and other operations. That’s up sharply from 2018, when 102 companies raised about $3.6 billion.
Despite a healthy supply of capital, however, investor attitudes toward biotech appear to be hesitant, scared off in part by a surge in volatility in the public markets in the fourth quarter amid global economic concerns. The VIX, an index that measures volatility in equities, peaked on Christmas Eve, and was up again in February and late March.
Even so, the balance of global biotech and pharmaceutical venture capital dry powder is approximately $10 billion in closed funds dedicated to biotech, with another $8.4 billion raised, Bloomberg data show. The balance of global dry powder sitting in buyout funds stands at approximately $55 billion, with $3.3 billion raised.
Compared to the broad equity market and the pharmaceutical sector, biotech investment activity is particularly sensitive to volatility shocks like the one U.S. markets experienced in the fourth quarter. The Nasdaq Biotechnology Index fell more than 20 percent in that period.
If recent volatility shocks are any indication, we will not see broad biotech stock performance—considered a proxy of investor interest—recover until late spring or summer. With many investors on the sidelines, biotech startups will need to closely monitor their cash and clearly communicate their value proposition to attract capital.
