European listed biotech landscape: 2019 review and outlook for 2020




2018 was a very bad year for the European biotech landscape, so the question was whether a rebound coud take place or not in 2019, in a global environment where the recurring macro themes basically remained unchanged: US/China trade war, Brexit, rates, recession fears (you know, the one that is announced every year for the year to come). At the end, 2019 delivered very mixed outcomes for the European listed bios, with many new records for the history books, but also with extremely different fates, especially between the leading companies and those who lost the favors of the investors. The macro relief at the end of year eventually allowed the sector to limit the damage suffered throughout the year by the European public biotech sector, as a whole. Here are some takeaways from 2019, with a short outlook on what is coming in 2020. Let us start this 2019 review with the highlights and lowlights.


Highlights



The largest European biotech IPO ever on Nasdaq in New York

During the summer, Genmab, the largest listed biotech in Europe, finally decided to list overseas, and raised 580 mUSD (518 mEUR). The company, originator of DARZALEX, the blockbuster myeloma drug, seeks to accelerate its growth. While ARZERRA is about to have a second life on the market in multiple sclerosis with Novartis (likely under another name), teprotumumab could be the third product from the company to hit the market, via its partner Horizon Pharma. The CEO of the Danish company, Jan Van de Winkel, stressed that the company's IPO had written a new line in the history of biotech, and not simply in Europe, since the Genmab IPO on Nasdaq was the second largest biotech IPO ever in New York, and the largest one from a European biotech overseas. So no, Genmab is not only DARZALEX, even though they are very happy to have it. The next-gen DARZALEX is also in development, in an HexaBody format.



The largest deal from a European biotech

On July 14th, the French Bastille Day, the Belgian investors could celebrate with their neighbor's fireworks. Gilead and Galapagos entered into a long-term strategic alliance to discover, develop and commercialize multiple products originating from the Belgian biotech, over the next decade. The deal economics are impressive, with an upfront payment of almost 4 bUSD -billion USD- (3.5 bEUR -billion EUR-), and additional equity investments totaling 1.5 bUSD so far (1.34 bEUR). On top of that, Galapagos is eligible to additional milestone payments, and to receive royalties from Gilead, mainly outside Europe where Galapagos will keep the rights. There were also few adjustments fo the terms for filgotinib. Assuming only 6 molecules would be developed over this period, on top of filgotinib, '1690 and '1972, the total deal value would reach 7.7 bUSD (6.8 bEUR). More importantly, the management of Galapagos met its primary objective of keeping the company independent, at least for the short and mid-terms. This had been a leitmotiv from Onno van de Stolpe over the past few years, fearing a more aggressive strategy from his US partner. But Daniel O'Day was appointed CEO of Gilead in the interim. Now that Galapagos is free to operate their own ways, and that Gilead secured a pipeline feeding source in which they believe, it seems that such a deal structure makes both partners happy, for now. The launch of filgotinib is on track for 2020 in the US, and the first compounds from the TOLEDO family will yield their first phase 1 results in patients with inflammatory diseases also in 2020. In addition, many other readouts are planned for filgotinib, '1205, '1690, '1972.



The largest secondary offering in European biotech history (companies who were listed in Europe first)

In November, argenx successfully raised 502 mEUR in a secondary offering, under the form of a global offering of shares both in the US (mainly in the US) and in Europe. This giant secondary offering was almost of the same size than Genmab's US IPO, or than Idorsia's IPO in Zurich. Impressive achievement for the Belgian company, who is on track to become the European version of Alexion, the company often mentioned by the CEO of argenx, Tim Van Hauwermeiren.


Lowlights



The lowest number of biotech IPOs in Europe since 2012

After a tough 2018 for European biotech stocks, and in a difficult macro environment during 2019, except for the last 2 months and a half, the global sentiment on the sector was negative, even in the Nordics, where the trend had been positive, conversely to the global continental trend. But this was just a phase shift, and the temperature eventually got cold in the Nordics anyways.
Only 3 IPOs of biotech companies occurred in 2019 on the main European markets: 2 in Sweden, with Alzinova in Q1 2019 (opportunistic move after Bioarctic's boom during the summer of 2018), followed by Ascelia (specialty oncology company) the same week, and Ultimovacs in Norway in June (therapeutic vaccines in oncology). This is the lowest number since 2012, within our universe. One IPO took place in Austria (outside our coverage), with Marinomed.
As we pointed out in our Introductory Report, the number of companies has grown much faster than the European markets could support financially, inducing a natural regulation in the number of new companies thereafter. Even more striking, a potential trend toward a contraction in the number of listed biotech companies in Europe was initiated in 2019. Indeed, the 3 new listings were offset by the acquisitions of Nuevolution and Realm Therapeutics, and FIT Biotech went into bankruptcy early in 2019. In addition, 2 companies are currently undergoing a reorganization procedure (Neovacs in France, and Mologen in Germany). Motif Bio is also looking to divest their operations and assets to become a cash shell. ASIT Biotech is more or less in the same situation after the failure of their lead program, and Klaria is about to merge with Karessa in Sweden. Such a shrinkage would probably be beneficial, unless the sentiment towards the sector improves significantly and brings new -sustainable- financial resources.
Concerning the dual-listings on Nasdaq, 3 companies proceeded successfully to US IPOs in 2019, versus 3 IPOs and 1 direct listing without offering in 2018. The 2019 companies were Genfit (138 mEUR raised), Genmab (518 mEUR raised), and Innate Pharma (71 mEUR raised), exceeding the 207 mEUR raised by Morphosys, Biofrontera and Tiziana in 2018. Biophytis wanted to live the American dream by launching their IPO in 2019, but the process was eventually withdrawn, the company and their advisors failing to gather enough support to raise just a few million USD.
Not in our universe because of their direct listing on Nasdaq, the German unicorn BioNTech raised only 150 mUSD, whereas investors questioned the valuation of the company, with a majority of early stage programs in the pipeline. But there was a reversal on the sentiment a few weeks after the IPO, and the stock gained 126% at the end of the year! Being part of the mRNA triad with ModeRNA and the smaller CureVac (also from Germany), one may just wonder when will be the turn of the last company, CureVac, to join the public markets, if it is their intention.
For 2020, the IPO trend could be slightly better in Europe, but one can hardly expect a big boom, as the sector is still in recovery.
In the US, according to data compiled by Jefferies, the biotech IPO activity remained at a high level, with 51 operations and 5.6 bUSD raised, moderately down compared to the local peak of 2018 (67 operations and 6.7 bUSD raised). Therefore, the gap remains huge, but consistent with the gap in financing power between the US and Europe.
In 2020, on top of macro events, the sentiment towards the sector will probably be impacted in some ways by the US presidential election campaign, and the anticipated sniper comments on drug pricing, with an expected escalation in the second half. At this point, it seems highly likely that the current President of the United States will be the Republican candidate, impeached or not, but in politics, never say never. For the Democrats, there is no clear leader, so the outcome of the primaries remains highly uncertain. For sure, there are some names that investors don't want to see popping up. As the level of aggressivity of the candidates' program (regulation) may vary substantially, the reaction of the markets could also range in a wide zone. On the other side, given that the US economic figures are still very good, many political experts and models predict an easy win for Donald J. Trump. So, at the end of the day, these elections could also be close to a non-event. As per the old French sayings, it takes two good opponents for a good fight. We sure have a beast for the Republicans. Can the Democrats find a candidate who will raise his game so that he could win? This is another story.



M&As: a poor year for acquisitions of European listed bios, more interested in doing some shopping

Only 1 "classical" buyout of a listed European biotech (listed in Europe only or dual-listed) occurred in 2019. In May, Amgen acquired Nuevolution for approximately 150 mEUR (167 mUSD), and a premium of 168% to motivate the existing shareholders. Although still at preclinical stage, the Danish company, listed in Stockholm, had already convinced Amgen to "opt-in" for 2 molecules in oncology during the second half of 2018. With a portfolio of preclinical candidates with attractive targets, Amgen has seemingly got their hands an interesting discovery platform.
A second acquisition took place in 2019, but it followed the transformation of Realm Therapeutics into a cash shell. In 2018, the phase 2 trials of the last 2 candidates of Realm Therapeutics failed in atopic dermatitis and allergic conjunctivitis. Realm decided to divest its hypochlorous acid assets to Urgo for 10 mUSD, before what was left got acquired by Essa Pharma, a Canadian company.
Concerning the acquisitions of companies by European listed bios, the German specialty company Biofrontera acquired Cutanea Life Sciences to expand their portfolio (but the commercialization of one of the 2 acquired products already had to be stopped!), the German Evotec bought Just Biotherapeutics in the US to propose new services towards the development of biologics, the Swedish Klaria Pharma acquired WBC Drug Delivery Technologies to secure their IP ownership just before proposing a merger with the Swedish company Karessa Pharma (same drug delivery platform IP). Combigene, from Sweden, acquired back its spin-off Panion Animal Health, also for IP purposes. In addition, Zealand Pharma acquired Encycle Therapeutics to potentially develop an ENTYVIO me-too, but also, and importantly, to take over a macrocyclic peptide discovery engine. Finally, in the diagnostics companies under coverage, the German Curetis (the Group) decided to sell its subsidiary to the American Opgen, hoping to find more financial support overseas for its Unyvero platform.



Financing: well-funded leaders, but still a tough environment on European markets

The financial environment has been very difficult for most of the European listed bios in 2019, even if, according to our Financing Monitor, the amounts raised or secured in H2 were exceptional. This was due to 3 monster operations (equity investment of Gilead into Galapagos for 960 mEUR plus 368 mEUR of subsequent warrants exercise, 518 mEUR Genmab Nasdaq IPO, 502 mEUR secondary offering from argenx). At the end of the year, and according to our estimates, only 53% of the companies had 12mo or more of cash, all financing lines included. This is down from 65% at the end of 2018. Additionally, only 18% of the companies had 2 years of financing secured at the end of 2019, versus approximately 1/3 at the end of 2018. 11% of the companies currently have an immediate need of cash (less than 3 months of financing). So, investors need to pay attention to the "going concern" section of the earnings. We also had a bankruptcy in 2019, with FIT Biotech, a very small biotech from Finland, killed by their convertibles (and their lack of significant achievements).
Overall, 5.5 bEUR were raised or secured by the European public bios in 2019, via various financial schemes, up from 3.6 bEUR in 2018 (+53%). However, excluding the 3 exceptional operations aforementioned, the amounts raised or secured during 2019 were 3.2 bEUR. With a bit more granularity, the "Equity Financing" operations (offerings with preferential rights or private placements) allowed to raise 3.1 bEUR (2.1 bEUR without the Equity investment of Gilead into Galapagos, versus 2.3 bEUR in 2018). 677mEUR were raised or secured from "Other Dilutive Financing" (warrants of any kind, convertible bonds, equity lines, options, etc.) during 2019, up from 585 mEUR in 2018 (309 mEUR in 2019 excluding the Gilead warrants exercise on Galapagos shares). The amounts from IPOs in Europe and in the US were 59 and 727 mEUR, respectively, from 317 and 207 mEUR in 2018 for European and American IPOs, respectively. Given the low number of IPOs over the last couple of years, large variations are observed. Overall, the amounts raised from IPOs increased by 50% (or decreased by 49% excluding the Genmab IPO). Finally, 1.0 bEUR were raised from "Non-dilutive Financing" (grants, straight bonds, loans, promissory notes, reimbursable advances in cash, etc.), versus only 244 mEUR in 2018. Finally, concerning the "Equity Financing" operations, the most important source of cash for the public companies, there were 112 operations in 2019, versus 87 in 2018 (+29%), but the median ticket was down to 6.8 mEUR from 8.8mEUR (-23%). The main difference with respect to 2018 is a larger number of operations below 8 mEUR.
To conclude on this part, out of 150 companies listed at the end of 2019, the total cash burn, according to our estimates (positive contributions only), should be around 5.0 bEUR (4.7 bEUR excluding Galapagos), up from 3.44 bEUR in 2018. The increase is driven both by the naturally higher costs for the majority of the companies, as they advance in their development, coupled to multiple asset acquisitions. The balance between the cash booked/raised from extra sources (upfront or milestone payments, divestments, awards from legal actions) plus financing operations and the burnt cash was positive by 4.8 bEUR in 2019. Excluding Galapagos, the balance remains positive for the 149 other companies, but only by 200 mEUR. Indeed, 1.44 bEUR were obtained from extra sources by these 149 companies during 2019, and 3.43bEUR raised or drawn from various financing schemes, while the cash burn was of 4.67 bEUR (biotechradar.eu's estimates). In 2018, the same balance was positive by 1.16 bEUR (3.44 bEUR of positive cash burn, as compared to 4.6bEUR of inflows, including 0.97 bEUR from extra sources and 3.62 bEUR from financing).



Deals in 2019: flattering figures, but only few progress in business development overall

The deal activity went down in 2019 from 2018, in terms of number of deals, all category included, with 102 deals in 2019 from 120 in 2018. However, the drop is mainly due to a decrease in the number of research collaborations, usually not really revenue-generating deals, with 22 in 2018 down to 12 in 2019. The number of Out-Licensing deals remained flat (54 in 2019 versus 53 in 2018). The number of Supply/Distribution deals was slightly down (20 in 2019 vs 26 in 2018), and no Divestment/Sale of asset occurred in 2019 (5 in 2018). 5 Joint-Venture deals were signed in 2019, from only 2 in 2018.
The Total Deal Value reached 15.3 bEUR in 2019 (8.5 bEUR excluding the Galapagos/Gilead long-term alliance deal) from 13.4 bEUR in 2018. The total cash upfront payments arising from these deals amounted to 3.9 bEUR (400 mEUR excluding the Galapagos/Gilead deal) from 1.2 bEUR in 2018.
Apart of the Galapagos/Gilead deal, the deals with the largest Total Value came from Silence Therapeutics and Mallinckrodt (multi-asset deal for up to 1.24 bEUR), Idorsia and an undisclosed partner for ACT-709478 in epilepsy and up to 2 other indications (up to 930 mEUR), closely followed by PharmaMar and Jazz Pharmaceuticals for ZEPSYRE in SCLC (up to 900 mEUR), and a multi-asset deal between Medigene and Cytovant/Sinovant/Roivant for the development of immunotherapies specific to Asian patients (also for up to 900mEUR).
There were 19 Out-Licensing deals with a Total Deal Value of 100 mEUR or more in 2019, versus 20 in 2018. Only 8 Out-Licensing deals with a cash upfront payment of at least 10mEUR were disclosed in 2019, against 18 in 2018.
The Europe-China axis was increasingly active in 2019, with 12 Out-Licensing Deals inked by the European biotech companies for China or Greater China rights, versus 8 in 2018, supporting the ongoing megatrend. 2 Supply/Distribution deals were also signed in 2019 (0 in 2018), while 1 Sale/Divestment occurred in 2018, making the total number of deals for Chinese rights rise to 14 in 2019, from 9 in 2018. Even excluding the 2019 deals between Medigene/Roivant and Pledpharma/Solasia (they both include the Japanese and South Korean rights), the Total Value of the deals specific to China or Greater China progressed to 700 mEUR for 10 Out-Licensing agreements in 2019, up from 330 mEUR for 8 Out-Licensing agreements in 2018. The total upfront payments are still modest though, with 60 mEUR in 2019 versus 56 mEUR in 2018.
Overall, 2019 was quite a slow year for licensing deals from the European bios. It is very hard to make any prediction for 2020, but several assets with a large commercial potential should be fully or partially out-licensed. It would not be surprising to see some deals being announced in the coming days (this comment was started before this week's deal disclosures).