Won't investors fly by?
"Biotech startups are a new multibillion-dollar bubble"
Yulia Krasilnikova, Hi-tech+
The developers of innovative medicines are breaking records in the American market. According to the platform Dealogic, in 2018, more than 52 biotech companies raised a total of $5.75 billion through an IPO - this is the highest figure in the United States since 2014.
Analysts of the Wall Street Journal studied the list of companies and found out that many of them are still conducting preclinical studies, and the product for sale will appear in the best case in a few years.
The huge Theranos scandal seems to have had little effect on investor sentiment.
So, the startup Allogene Therapeutics, which is developing allogeneic cell therapy for cancer, raised $373 million during the IPO. This is one of the largest sums that a biotech company has managed to get. At the same time, the project is not just unprofitable. He does not produce anything, and therefore even the revenue is close to zero.
Another example is Rubius Therapeutics with $277 million received during the IPO. The startup is also engaged in cell therapy, but the proposed methods have not yet been tested on humans.
The startup Homology Medicines with an estimated $700 million plans to conduct clinical trials only in 2019.
The bubble is inflating
According to the WSJ, the average market value of a biotech startup reaches $535 million. In the list of those who conducted an IPO, 37% of the enterprises are newcomers. These companies have no finished products, no research results, no human tests. In other words, investors invest in projects without knowing about their safety and effectiveness.
As a rule, biotech startups do not meet expectations. Among the 20 companies that raised the most money for the IPO, seven then fell in price, and by an average of 31%.
Experts point out that biotech attracts long-term investors who are willing to wait for years. Those who invest millions in them hope that the startup will still make a breakthrough and sooner or later bring billions.
Of the 142 graduates of the Y Combinator business incubator, for the first time, a quarter were companies related to biotechnology.
Selective optimism
Interestingly, in another publication a month ago, the Wall Street Journal noted that investors are afraid to take risks and do not invest in biotechnology. "What will be called the best medicine in its category on Monday may become obsolete by the weekend," the newspaper quoted Jared Holtz, a medical trader at Jefferies Bank.
Investors are particularly cautious about developments in the field of genetics, including experiments with CAR-T immunotherapy. The startup Allogene Therapeutics specializes in it, which will begin full-scale trials in the second half of 2019.
Theranos Lessons
The faster growth of biotech companies is still hindered by the scandalous story of the startup Theranos, which promised to radically change the market for the diagnosis of diseases and reached an estimate of $9 billion in 2014. The startup's methodology was recognized as unscientific, promises were unattainable. Now the founders of the company face up to 20 years in prison on fraud charges, as well as more than $2 million in fines.
At the same time, paradoxically, Theranos provided investors with detailed texts of clinical trials certified by pharmaceutical companies. Subsequently, it turned out that the documents were made up by full-time employees of the startup.
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