Public Markets Update and Outlook
Following the outbreak of COVID-19, the Biopharma Services sector continued to outperform the overall market through the end of 2021 with public valuations that reached all-time highs. However, the sector has since followed the broader market trend with a YTD decline of -33.8% (versus the S&P 500 that is down -18.8%). Biopharma Services stocks currently trade at 15.7x LTM EBITDA compared to a 3-year average multiple of 18.4x.
With the growing probability of a recession, investor sentiment is expected to shift favorably for Biopharma Services particularly for stocks with less exposure to current macroeconomic headwinds. Biopharma Services stocks have typically outperformed the S&P 500 in past economic downturns due to favorable end-markets, variable cost structures, balance sheet flexibility, and high FCF conversion.
Emerging biotech represents an important customer segment for Biopharma Services as these companies outsource the majority of their work. Although biotech stocks have entered bear market territory with a YTD decline of -32.1%, these companies still have an average cash runway of ~27.5 months. Furthermore, the venture capital community continues to aggressively finance biotech companies with ~$25.7 billion raised YTD (compared to ~$32.1 billion for the same period last year). Therefore, demand for services from emerging biotech is expected to continue to be strong over the next 12 months and beyond.