BIOTECH & PHARMA MARKET OVERVIEW Key readouts that developed in the last quarter

Recent XBI rally suggests we might've reached a bottom?.
• Since the peak in the healthcare market, we have seen outperformance of big pharma players against the broader market with investors looking for non-cyclical, quality but most importantly, cash positive names. With the recent rebound of the XBI ~30% from drawdown lows in the last month, we could start to be on track for recovery
• We note that in H1-22 that 93% of all European biotechs ended in the red, with the noticeable exception of a few select names (Oncopeptides, Vicore, Acticor). We note a rapid increase in negative EV companies in recent months (45% since Q1-22),
European financing environment favoring companies with late stage derisked assets
• With ~50% of the European biotech space with less than 12 months of cash left, we saw some financing getting through but selectively for derisked higher quality assets (argenx, Ascendis).
• Biotechs are looking at rationalizing their business plans by i) focusing commercial/near commercial assets, ii) prioritising internal projects, and iii) divesting non-core assets. As we have seen with MorphoSys’ recent deal, licensing out the company’s two mid-stage assets for a $15m upfront and equity, and Basilea’s decision to halt their oncology development to reduce the cash burn
Big pharma driven M&A in H2 not a given
• We have seen a fairly muted period of M&A activity despite evidence of record levels of dry powder from big pharma, see page 10. In our view, valuations don’t necessarily govern Big pharma’s decision on acquisitions rathe the focus is the quality and fit of the asset.
• Buyers so far have rather been VC/PEs as well as mid-caps (such as Ipsen) focusing on struggling commercial stage biotech.
Consolidation and fresh fund flowing into the European VCs
• We have seen two recent acquisitions made this quarter namely Carlyle/ Abingworth and Apollo/ Sofinnova (minority) following the EQT/ LSP acquisition in addition to new funds from Forbion, ARCH, Omega Funds and Cambridge innovation capital.

• This injection of capital is sending a signal to many European companies that companies can be well funded and stay private for longer, with greater infrastructure in place that therefore trickles down to the public markets that can better support these companies and ultimately, with more capital allocated to healthcare in Europe, we envisage more retention of European companies.

• That said, we expect valuations on the private to come down as well and otherwise VC funds might be deployed on the public side in a reversal of the financial arbitrage we saw in recent years