Horizon Technology Finance Corporation, a business development company specializing in venture debt, just released their Q1 2024 earnings. While the overall market remains cautious, seasoned venture lenders like Horizon are starting to see the "green shoots" of a potential recovery, particularly in a segment that's flown under the radar: biotech.

Reading between the lines of their <a href="https://seekingalpha.com/symbol/HRZN" alt="HRZN Q1 2024 Earnings Call Transcript">Q1 2024 earnings call transcript</a>, there's a subtle but undeniable optimism brewing. Horizon's President, Jerry Michaud, casually dropped a bombshell: seven life science companies went public in the first two months of 2024. This, compared to just two in the same period last year, points to a burgeoning IPO market specifically for biotech.

But why is this significant? Horizon's business model thrives on successful exits for their portfolio companies. IPOs and M&A activity directly translate into prepayments for Horizon, boosting their profitability and allowing them to reinvest in new high-yielding loans.

Remember, Horizon boasts one of the highest debt portfolio yields in the BDC industry, clocking in at a remarkable 15.6% this past quarter. Coupled with their careful underwriting and focus on strong investor-backed companies, they're perfectly positioned to capitalize on this resurgent biotech trend.

Now, consider this: Horizon expects origination activity to pick up significantly in the latter half of the year. While their Q1 originations were focused on existing portfolio companies, their pipeline for new opportunities has been fully replenished to a staggering $1.8 billion.

This isn't just blind optimism. We're talking about a team with an average tenure of over 20 years in the venture lending space. They've weathered countless storms and know how to recognize the early signs of a turnaround.

Here's where things get even more interesting: Horizon successfully raised over $12 million through their ATM program in Q1. They're building up their war chest, patiently waiting to deploy capital into the most promising companies as the market gains momentum.

So, what's our hypothesis? We believe Horizon is laying the groundwork for an explosive second half of 2024, fueled by a biotech boom that's largely escaped mainstream attention.

Let's look at the numbers: If the current trend in biotech IPOs continues, we could see over 40 life science companies going public by year-end. Even if only a fraction of those are Horizon borrowers, the impact on their prepayment activity and overall profitability could be substantial.

Furthermore, with a $1.8 billion pipeline and the ability to leverage their partnership with Monroe Capital, Horizon has the firepower to make significant new investments as the market picks up. We anticipate a surge in originations towards the latter half of the year, translating to higher interest income and ultimately, a boost to their already robust NII.

Projected Growth in Life Science IPOs

This chart illustrates the potential growth in life science IPOs based on the trend observed in the first two months of 2024.

"Fun Fact: Did you know that Horizon was founded in 2008, right in the midst of the financial crisis? Talk about a testament to their resilience and ability to navigate challenging markets."

This isn't just a BDC riding a wave; it's a team of seasoned professionals with a knack for identifying emerging trends and capitalizing on them. While others may be cautiously watching from the sidelines, Horizon is quietly positioning themselves to reap the rewards of a biotech resurgence that's poised to take the market by storm.