Hedge Funds are Shopping for BioTech Bargains Amid Market Downturn

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This year, biotech is more like a biowreck.

A burgeoning sector last year, biotech has taken this year’s market tumble harder than even the most vulnerable of sectors. But there might finally be a light at the end of the tunnel in the form of hedge funds staring wide-eyed at the sudden bargain bin.

One Correction

Close to 200 listed biotech companies around the world were trading below the value of their cash reserves as of last week, according to investment bank Torreya Capital. The global biotech sector, which had a peak aggregate value of over $500 billion in February 2020, had lost over 70% of that as of May, coming in under $200 billion, according to S&P Capital IQ. In other words, things are bad.

How bad? “This is the worst correction I have seen in my 22-year career,” Michele Gesualdi, founder of investment group Infinity Investment Partners, told the Financial Times of the biotech sector. Drug companies, especially in early startup stages, are burdened with running expensive clinical trials to get their products to market — making them particularly vulnerable when there’s less risk-capital sloshing around. While that tough environment has bludgeoned biotech fundraising this year, some funders are ready to step in:

  • “For many public company biotech CEOs looking to raise capital, it may feel like they are caught in the Sahara desert,” Torreya managing director Tim Opler told the FT. But Infinity Investment, which has $1.5 billion in assets under management, launched a new life sciences fund to capitalize.
  • “It’s the one area where there’s been complete and utter capitulation,” Andrew Clifford, CEO of Platinum Asset Management, added to the FT. His firm, which has $14 billion in assets under management, is launching an EU version of its existing health sciences fund to profit from the sudden decline in valuations.

Merge Records: UBS’ hedge fund unit recently tapped a new team to bet on rising and falling valuations of healthcare therapeutics firms — the bank thinks capacity for $1 trillion in M&A deals as bigger pharma companies try to acquire new treatments for their drug pipeline.