By Joshua Mazher, Equity Analyst
Navigating businesses in a post-pandemic world has been rocky, to say the least. The lingering effects of economic turmoil amidst unprecedented developments in the market have left many companies struggling to find a solid foothold. Biotech is certainly no stranger to economic downturns, and the past few years have not been an exception. To understand the current state of the biotech economy, it’s important to first understand the root of the current economic climate.
The year is 2019, and all seems right in the world… The Fed stabilizes interest rates at around 3.94%, the market is functioning as intended with no significant supply or demand shocks, and the stock market is operating at an even-keel pace. Suddenly, the COVID outbreak occurs and the world comes to a grinding halt. Global markets quickly shut down, leading to a cascading effect of economic contractions. The biotech industry is particularly sensitive to economic contractions, as it is a capital-intensive industry. This means that companies need to invest heavily in research and development, which can be a risky proposition in a time of economic uncertainty. As a result, many biotech companies have been forced to cut back on their research and development spending, which has slowed the pace of innovation in the industry. One of the best measures of financial prosperity in the biotech sphere is the number of newly formed IPOs in a given year.
In 2021, the combination of micro interest rates and large government stimulus packages to fight the pandemic prompted companies to begin their transition from private to public in a heartbeat. A total of 1,035 IPOs were formed in 2021 alone, leaving many companies and investors optimistic about the future of the stock market, with biotech being no exception. In 2021, Biotech companies had 152 offerings that raised over $25 billion. Such numbers gave a good reason for investors to begin to expand their portfolios to include various biotech firms with large valuations. Unfortunately, these expectations were a bit too grand. Many investors grew wary of the surge of new IPOs entering the market and began holding on to their funds. By the end of the year, many companies with great hopes ended up flopping. Oscar Health Inc. is one such firm that bit off more than it could chew, as its initial public offering sold at $39.00, but went all the way down to around $6.00 one year after the start of its IPO. That is a price reduction of approximately 84.6%. Sana Biotechnology Inc., a biotech company that showed a lot of promise, was another company that ended up falling drastically in value. Their initial public offering stood at $25.00, however by the end of the year it fell to $8.81. This represents a loss of approximately 64.8%. While the highs of 2021 certainly outweighed the lows in totality, signs of a crash-and-burn effect were in full throttle going into 2022.
By 2022, soaring inflation rates and higher energy costs prompted the Fed to hike interest rates and decrease the money supply. This process of cooling down the economy was expected, but not to the extent it did. The number of biotech IPOs in 2022 slumped to a meager 47, totaling approximately $4 billion. As aforementioned, the amount of investment is paramount to the success of a biotech company, so having a decreased money supply means that the amount of spending on research and development goes down, spelling trouble for companies attempting to go public.
That leaves us here, in the middle of 2023. Interest rates are climbing, meaning investors can seek a sure return on their money, instead of risking it on unprofitable biotech companies that may eventually make money. Halfway through the year, there have only been 86 IPOs as of July 20, 2023. The market woes for startups have continued since 2022, however, what does this tell us about the companies that do manage to go public even in times of financial uncertainty?
Acelyrin Swims Upstream
Enter Acelyrin, a biotech company founded in 2020 with an anomalous financial proposition. Acelyrin has a plethora of qualities that make it stand out from the pack, but perhaps the first to note is that it is a late-stage clinical biopharma company. This in and of itself is an anomaly as late-stage biotech startups are virtually nonexistent. This means that Acelyrin has at least one drug program in its pipeline that is already near commercial development. This program has an interesting yet memorable name Izokibep and its purpose is to overcome the limitations of monoclonal antibodies in the application of immunology therapies. A traditional monoclonal antibody is designed to replicate and enhance one’s immune cells. Acelyrin’s Izokibep is an antibody that promises to be more potent yet compact in size, allowing for better tissue penetration. Additionally, results show that the molecule used has an extended plasma life, meaning a longer-lasting antibody, meaning that just one dose of the medicine may work for longer than other agents. The range of such a tool is immense and Izokibep is currently in late stage testing against a wide range of immunological diseases. The world of biotech as a whole can greatly benefit from such a drug, making Izokibep one of the most notable pipeline drugs in the industry right now.
The results of the clinical testing trials have been fantastic, with multiple reports of success. Acelyrin’s press release says it best as Izokibep, “continues to support the hypothesis that the high potency and small molecular size of izokibep can lead to clinically meaningful, differentiated benefits for patients, including resolution of important manifestations of each disease associated with residual pain and severity of disease.” According to Acelyrin’s reports, the market for the drug could grow to over $28 billion globally by 2030.
Not Your Typical Leadership Team
“An ounce of practice is worth more than tons of preaching” — Mahatma Gandhi. Leadership is best shown through example than through words, and Acelyrin fits this mantra to a tee. Shao-Lee Lin, MD, Ph.D. – CEO and Founder of Acelyrin – is a woman with over three decades worth of experience in biopharmaceuticals. Her extensive portfolio includes an MD / Ph.D. in immunology at Johns Hopkins, as well as an undergraduate degree in chemical engineering and biochemistry from Rice University. She has served as a clinical scholar at Rockefeller University, and as adjunct faculty at Cornell, UCLA, Stanford, and Northwestern medical schools. Her career as a dedicated physician bodes well with her experience as a biopharmaceutical executive. The same can be said of Acelyrin’s entire senior leadership team , which happens to be female-majority. This notion is huge as even by today’s standards, having female-majority leadership in any field, nevertheless one tied so heavily to the capital market, is a rare commodity. Statistically, only 16% of leaders in the healthcare industry are female. Going against such numbers proves that Acelyrin isn’t afraid of being the odd one out, which could also explain their ability to acquire their rather impressive finances.
Financing and Prospects
Acelyrin has secured over $1 billion in private and public funding since its founding in 2020. According to their 2023 first-quarter financial results, the company has $289.2 million on-hand cash, with a net total of $862.9 million coming from their IPO proceeds and existing cash balance. Their stock hit the market at $18.00 in June, and received a market cap around $2 Billion. Just to give you an idea about current valuation vrs future potential, the global market for psoriatic arthritis (just one of the many target markets for Izokibep) is projected to reach $12.4 Billion by 2027. Just based on that indication alone, if the company arrives at a successful launch of Izokibep, the company’s market capitalization could double or triple.
As mentioned earlier, research and development spending is vital for the long-term success of any biotech company, and Acelyrin has been quick to note that a significant portion of its newly acquired funds have gone to research and development. When taking into account its experienced leadership panel and its already well-credentialed status in biological sciences in general, it’s hard to believe that Acelyrin won’t have several late-stage drugs in its pipeline in the next few years to come.
Investors have already begun to see Acelyrin’s prowess as evidenced by the large amount that the company was able to collect in a short period of time. From 2021 to 2022, even during times of financial strife for the world, Acelyrin was able to bring in half a billion dollars from investors. The majority of this funding went towards developing its pipeline, specifically with the aforementioned program Izokibep. As Izokibep continues to garner attention and provided a long string of positive results, it’s only a matter of time before pharma giants like Eli Lilly and Novartis get on board. Only time will tell if Acelyrin’s growth trends will continue at their current rate, however with inevitable partnerships on the horizon, picking up shares now would seem like a great option.