Big Pharma regained 'mojo' last year, but biotech valuations remain 'precarious': report

Anyone looking for a road map out of the biotech bear market will take little comfort from Evaluate Vantage’s latest report. While Big Pharma valuations “regained their mojo” toward the end of last year, the outlook remains bleak for smaller scale drug developers.

You only have to look at Fierce Biotech’s Layoff Tracker to see that 2022 was a grim year for biotechs. How grim? Well, only a fifth of the 532 small cap biotech stocks tracked by Evaluate Vantage ended up on the year, “with many trading below cash,” according to the market insights company’s latest report.

Despite a “year of deep declines” in share prices, it was a recovery among big cap companies in the final quarter that saved biopharma from “disaster” in 2022, Evaluate said. This $567 billion surge in combined market cap for the 11 biggest pharmas recovered almost six months’ worth of losses, the authors noted. Leading the big cap cavalry charge was Novo Nordisk, followed by Moderna, Gilead and BeiGene.

“It is too early to call this a recovery, but hopes that a floor has been hit might not be misplaced,” the authors wrote.

However, overall valuations for smaller biotechs proved to be “less buoyant,” although there was also an uptick in the final months of the year. Amgen’s designs on Horizon tapped $11.6 billion onto the inflammation-focused biotech’s market cap alone, the authors noted.

“A handful of notable clinical wins just about managed to outweigh the disaster stories found among the small caps, though the situation at this end of the sector is of course much more precarious,” the authors wrote. “Cash is running out for many of these groups, and the prospect of raising any more is poor.”

For struggling biotechs, a potential buyer is always one option out, and here Evaluate may have some better news, pointing to a “flurry of activity” in the fourth quarter. The “protracted slump in valuations is forcing sellers to the table,” suggesting acquisitions may yet pick up, the authors said.

“Before parting with big sums in 2023, buyers will have to overcome concerns about economic growth, however,” the authors warned. Then there’s the regulatory environment, with “the FDA taking its foot off the gas on both drug and device approvals last year.”

“A clampdown on the accelerated approval pathway threatens to limit green lights for the therapeutic world further in 2023,” they added.

Meanwhile, venture capital for biopharma totaled $21.7 billion for last year, a drop on the $28.5 billion in the “outlier” year of 2021, but more in line with $22.6 billion and $15.7 billion brought in during 2020 and 2019, respectively.

“Investors insist that venture funds remain well stocked, which is true for now,” the authors wrote.  “But the closing of the IPO window and a wider shift in risk appetite is forcing firms to circle the wagons and protect existing portfolio companies.”

It may be cold comfort, but apparently the situation for medtech was even worse. “More companies saw their market value slide than rise, regardless of their size, and surprisingly U.S.-listed stocks felt as much pain as those in Europe or Asia,” the report's authors said.