A report from J.P. Morgan shows an increase in biopharma activity so far this year and where some improvement can be made.
Biopharma investment activity has been on the upswing so far in 2024, recovering from the downturn of the last few years. A new report from J.P. Morgan this month broke down the figures on how biopharma has done so far this year and found further evidence of a recovery.
The J.P. Morgan report noted that venture investments have returned, with “high-dollar rounds” entering the wider biopharma scene. It also stated that M&A activity had kept a “healthy pace” while the IPO market continued robustly.
J.P. Morgan tracked $7.6 billion across 107 biopharma venture rounds in the second quarter of 2024. This comes after $6.5 billion was seen across a previous 107 rounds in Q1 2024, beating Q1 and Q2 2023.
Biopharma’s uptick is likely due to a combination of factors, a J.P. Morgan Commercial Banking spokesperson told BioSpace in an email.
“The private capital market tends to follow the success of the public markets. As the follow-on market becomes more reliable and functions more predictably, the IPO market tends to open up wider,” the spokesperson said. “From there, sentiment in the private capital market tends to increase.”
The report also noted that interest rates have “plateaued,” with J.P. Morgan economists now expecting the first rate cut in September 2024 instead of November, as they had previously forecasted in the report. Interest rates have correlated with deal activity in the past, so investments may be prevalent in the latter stages of the year, according to the report.
While the data make clear that the overall number of “mega-rounds” of $100 million or more is down from a peak in 2021, around 50 biopharma companies raised venture rounds of this size in the first half of the year. Early-stage investments such as seed and Series A rounds totaled $5.1 billion across 105 rounds this year, with the majority coming in the second quarter.
The report highlighted that the biggest early round belonged to AI drug discovery outfit Xiara Therapeutics, which received $1 billion in April. Other notable rounds include Diagonal Therapeutics, which secured $128 million, and Reunion Neuroscience, which netted a $103 million Series A.
The spokesperson said that company creation in biotech has always been strong, and investors will continue to look for opportunities to deploy capital. However, if interest rates do decrease, investors may become more optimistic “against the backdrop of an incrementally friendly cost of capital.”
However, the spokesperson noted that the fundraising environment is a challenge. One of the more significant concerns is that some companies are not allowing ample time to run the fundraising process.
“Down rounds could continue to be a common trend as companies try to find capital in any way that they can. Still, good companies will attract capital from investors who are again intensely focused on founders’ track records,” the spokesperson said.
Another of the main bounce backs from last year was the IPO market, with ten transactions completed in the first half of the year, compared to 13 completed all last year. Around $1.9 billion was netted on the exchanges this year, compared to the $2.7 billion raised all last year via IPOs. The largest IPOs include CG Oncology’s $437 million raise and Kyverna Therapeutics, which secured $367 million.
The spokesperson noted that the XBI, the biotech sector’s index, is up 22.3% year-to-date, while the Nasdaq and the S&P 500 are up 65.8% and 42.2%, respectively.
“Biotech IPO activity is rising as the market becomes more receptive to high-quality issuers. There remains a backlog of companies looking to go public, and we expect to see continued issuance from the sector as long as macro headwinds and market dynamics remain constructive,” the spokesperson said.
Looking ahead to the rest of the year, the spokesperson noted the areas that could see activity include biologics and small molecules. So far this year, these programs have seen continued capital flows across private financing and licensing transactions. This demand for more validated therapeutic approaches seems to be on the upswing, the spokesperson noted.
