Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Biotech's Trump-inspired rally has been a major source of relief for the industry, in more than one way.

With the Nasdaq Biotech Index (NBI) up nearly 10 percent since Election Day -- including the biggest one-day jump in biotech shares in nearly a decade -- companies can now tap equity markets for funding more successfully. That's a big relief for companies depending on share sales to fund years of losses as they develop drugs.

But though the fundraising window is open a crack, it may not stay that way. There's currently a market consensus Donald Trump's administration will be friendly to biotech, but there's no guarantee that feeling, or Trump's amity, will last. Cash-hungry biotechs might want to take what they can get during the current rally instead of hoping for a bull-market return. 

On Sale
Tesaro's share price took a hit after the company sold shares earlier this month, but it is mounting a comeback
Source: Bloomberg

2016 has been something of a share-sale dead zone, as companies have been hesitant to dilute shareholders for meager returns. So far this year, 140 share sales by public U.S. biopharma companies with a market cap of less than $23 billion have raised about $7.23 billion. That compares unfavorably with 2015's bonanza, with 200 offerings raising more than $18 billion. It's not even up to the standard of  2013, when about the same number of offerings managed to raise $1.6 billion more. 

Sluggish
Biotech firms have had a hard time raising money by selling shares over the course of a rough year for the sector
Source: Bloomberg

Compared to 2015 and 2014, a greater concentration of share sales this year have been small, raising less than $100 million. Those offerings have netted firms less money, on average, as well. There have been fewer of the $100 million to $500 million offerings that can net hot biotechs several years' worth of cash in one go. There have been 20 such offerings so far in 2016, compared to 55 in 2015 and 41 and 2014.

There are glimmers of hope. Firms have already raised as much money in November as they did on all of October. A big chunk of this year's deals came in August and September, as the NBI hit its highs for the year after a 28 percent plunge to start 2016. The NBI is still near those highs, but that late-summer rally petered out. And this one very well might, too.  

Mean Reversion
Biotech stocks have been unable to sustain a rally for any length of time this year, and the Trump Bump might be no different
Source: Bloomberg

Nobody quite knows what Trump's presidency will bring, and biotech is no exception. Non-political drug-pricing pressure is going to continue in 2016 regardless of what the new administration does. Watching the rest of the stock market hit all-time highs and hoping biotech will join in is not the safest bet.

After watching the NBI hit its own all-time high and then plunge as much as 27 percent in the third quarter of 2015, most firms opted for fundraising patience, assuming a more-substantive recovery couldn't be too far off. The fourth quarter of 2015 was the second-slowest quarter for biotech share sales in four years.

That forbearance was rewarded by another nearly 30 percent drop in share prices. Every firm that held off has been ruing the decision ever since. Sometimes patience just doesn't pay. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. This market-cap cutoff helps exclude Zoetis, an animal health company that does not fit an analysis of biotech fundraising.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net