How are Leiden’s listed biotech companies doing? The Leiden biotech index makes it clear

(Read more about Bio Science Park here)

On February 11 this year, a disaster strikes for the Leiden biotech company ProQR. On that day, CEO Daniel de Boer must announce that the drug Sepofarsen, which his company is developing for rare eye diseases, is not working. “A sad day for everyone involved in this program,” grumbled De Boer. As soon as the company’s share price collapses by more than 75 percent, ProQR is worth three hundred million euros less within minutes.

Yet almost no one in Leiden knows about the misery. ProQR is listed on the US Nasdaq Stock Exchange, the news is only disseminated from America to the financial world. In Leidsch Dagblad we would not have known about this news if we had not seen the powerful dive in the Leiden Biotech Index that day. The index had only been completed for a few days and was still in the testing phase. At first we thought it was a bug in the program code: after all, the result was so big and sudden. But on closer inspection, we saw that the price line was pulled down by ProQR. Shortly afterwards, the news appeared on the newspaper’s website.

Basket of stocks

The discovery of the ProQR news was, of course, a game of chance, so soon after its creation. Nevertheless, it immediately showed that such an index is a good means of monitoring the results of the twelve listed companies active at Leiden Bio Science Park (LBSP). This includes not only Pharming and Galapagos, well-known names that we know from the Amsterdam Stock Exchange, but also funds listed elsewhere in the world. ProQR of course, and Pharvaris.

These are Leiden companies whose shares are only for sale via the American tech exchange Nasdaq. This gives them easy access to the major US investors in biotech because they like to invest in funds on their housing exchanges. But they are also less noticeable in the Netherlands.

The Leiden Biotech Index is a basket of stocks in all companies active at Leiden Bio Science Park. In addition to the aforementioned four of the genuine Leiden companies, these are also Airbus Defense and Space – known for the large gray cube along the N206, Astellas Pharma – housed in the futuristic office building in the middle of the park, Avery Dennison – prominent on the Oegstgeest section , Bristol Myers Squibb – the pharmaceutical company building a giant cell therapy factory on the Oegstgeest section of LBSP, Dr. Reddy’s Laboratories – the former Octoplus, now Indian-owned, DuPont de Nemours – with Nutrition & Biosciences next door to Avery Dennison. And finally Nikon – owner of the new Bioimaging Lab in Biopartner 2.

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Calculation method

By merging shares in all these companies, one can see on the common price movements how ‘our’ Leiden companies are doing. Small problem: the value of the shares in the individual funds varies enormously. For example, if you want to buy one share in Avery Dennison, you will quickly lose 160 euros, for one share of Pharming 87 cents. If Pharming were to rise ten per cent, it would have a much smaller impact on the price of the whole index of 8.7 cents than if Avery rose by ten per cent, or 16 euros. Of course, we do not want the big funds to control the biotech index.

So to ensure that all funds have an equal impact on their progress, we have applied a weighting factor. We calculate this by taking 31 December 2021 as a benchmark (or 30 December for shares listed in Frankfurt, where the stock market was closed on the last day of the year). That day we look at how many shares you can buy from each fund with 100 euros.

This provides a multiplication factor that we can use to make a weighted basket. For example, the Pharming stock gets a factor of more than 129 and the Avery 0.5. Of course, we took into account exchange rate differences and settled the value of the US funds against them. With the total value of the funds – after using their multipliers – we index the Leiden Biotech Index to a total value of 100 on 31 December 2021. All other trading days – and everything before – we use the same calculation method to calculate the value of the index. So you can see how the Leiden funds as a whole are doing, compared to their value on the last day of last year.

Comparison

A local biotech index like this is already fine in itself, but it is only really useful if you can compare it to the rest of the world. To make that comparison, we have also included the price of the AEX index in the chart and the price of a specialist global investment fund in biotech companies: Global X Genomics & Biotechnology ETF (Gnom). We have also indexed these indices alternately to a value of 100 per. 31 December 2021. The prices of all three indices are therefore the same in the chart on that day, and we can compare them in the years before and after.

So how is the Leiden Biotech Index doing? Not bad. Particularly striking is that the Leiden index is fairly stable compared to the other two indicators. Its value is now slightly higher than it was in March 2020, the month in which stock markets around the world suffered a crash due to the outbreak of the corona pandemic. That in itself is not bad, at least no value has been lost. But if you look at the developments in the global stock markets since then and until now, the Leiden Biotech Fund is a bit disappointing. Compared to that moment, AEX has almost doubled in value. For the return, it would have been better to invest in ordinary stocks. If you only look at biotech, the story is more nuanced.

First out is the Gnom index: its line continues through a series of hysterical highs and lows. This has to do with the extremely offensive nature of this fund: it invests in 39 companies that are at the forefront of biotechnology. These are often research companies whose prices are driven by the hope of developing and approving new drugs, but which also occasionally disappoint greatly. A painful example of this is ProQR, the only Leiden fund we find in the Gnom index.

In a basket of 39 such companies, something between hope and fear can happen. Our biotech index is much more stable than such a pilot fund because many of the names in the index belong to ‘big pharma’. Companies like Bristol Myers Squibb, Johnson & Johnson and Dupont are also researching but making their money on production. As a result, the price movements of these funds are calmer and the percentage changes in the price of their shares are smaller.

Incidentally, the biotech index is not entirely immune to drama. The disaster at ProQR had a significant impact on price developments: on February 11, the index lost six percent of its value within a day. Our stock basket would also have fared much better if the Galapagos had not experienced a drama comparable to ProQR in 2020. Just before the Covid crisis, the Galapagos stock was still worth 250 euros, today almost five times smaller. This has taken a heavy toll on the index, which traded nearly fifty points above the AEX in early 2020, much better than the broad market, but went under in August last year.

Due to the collapse of the Galapagos and the relatively slow recovery of some other funds in the index, we see that the biotech index has not been able to regain the glory days before the corona crisis. Would it ever be possible to return? It is, of course, uncertain, but certainly not impossible. We will continue to closely monitor the ups and downs of the funds in our basket from now on via the Leiden Biotech Index.

abeklippen

The share price of a listed fund does not in itself say much about the value of a company because the number of outstanding shares also has a big impact on this. The market value – stock value times the number of shares outstanding – is a much better indicator. How are our Leiden biotech pearls compared to the international pharmaceutical giants that are also active in Leiden?

Fund and market value:

Nikon Corporation: 490.7 billion euros

Johnson & Johnson: 390.2 billion euros

Bristol Myers Squibb: € 128.8 billion

Airbus defense and space: 90.3 billion euros

DuPont de Nemours: 36.3 billion euros

Astellas Pharma: 28.3 billion euros

Avery Dennison: 13.4 billion euros

dr. Reddy’s Laboratories: € 8.1 billion

Galapagos: 3.7 billion euros

Pharming: 549 million euros

Pharvaris: 506 million euros

ProQR: € 87 million

(Value mid-February 2022.)

And Bril?

It may be a little sad, but the only other real Leiden stock exchange fund outside the Galapagos, Pharming, ProQR and Pharvaris is not allowed to participate in the index. Although this four hundred year old publisher of scientific publications is listed on the local market in Amsterdam, it is not involved in biotechnology and is located on Plantijnstraat in Leiden-South. The small fund – market value 42 million euros – therefore does not have much to look for in the Leiden biotech index.

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