The fight in the U.S. over the raising of the debt ceiling and the sovereign debt crisis in Europe fueled turmoil in the stock market that has taken a toll on the performance of biotech stocks, slamming the brakes on what had been a solid year of financing for the sector.
Public financing in the third quarter fell to just under $3.1 billion compared to $9.1 billion in the previous quarter. The amount raised through IPOs fell 72%, follow-ons fell 79.8%, and PIPEs fell 53%. Seven life sciences companies filed to go public in the third quarter in the U.S., but ultimately only one company went public. Horizon Pharma completed its offering at the end of July, just before the markets turned volatile.
While there continue to be encouraging developments within the sector with companies reporting positive clinical results, the market remains jittery as concerns remain about the sovereign debt crisis in Europe and worries grow about the ability of the Congressional super committee in the U.S. to reach agreement on a plan to reduce the deficit.
These broader economic and political worries have thwarted access to the capital companies will need to grow.
Early indications for the fourth quarter have not been encouraging. Though the medical device maker Zeltiq Aesthetics managed to complete a $91 million IPO, the first life science IPO since the end of July, no biotech companies went public in October.
In fact, public financing for the biotech sector in October totaled less than $1.2 billion, down more than a 60% from the same period a year ago. Companies were unable to raise any money through public offerings and there were sharp declines in PIPEs and debt offerings.
Investors were quick to punish companies for bad news. Dendreon was the hardest hit in the sector, falling nearly 77.1% during the third quarter as investors dumped its shares in the face of disappointing sales of its cancer vaccine Provenge.
The next-generation sequencing companies Pacific Biosciences (down 72.6%) and Complete Genomics (down 61.6%) also fell sharply during the quarter as concern grew about the effects of shrinking research budgets on adoption of their products.
Venture funding in the third quarter fell slightly from the previous quarter and the same period a year ago. With $1.3 billion raised, it was a solid period for private financing. But an analysis of private financing in October raises some questions about the ability of early-stage companies to raise capital.
While first funding accounted for about half of the $547 million total raised through venture capital and private equity funding in October, the numbers alone don’t tell the story. Six companies completed initial rounds that accounted for 44% of the month’s total venture funding as they raised a combined $237.5 between them.