Initial public offerings may slowly be coming back to the biotechnology sector.
Eight biotech companies priced IPOs from July through the end of September, raising $1.1 billion in total, according to data compiled by BioPharma Dive. That compares to four in the second quarter, which brought in about $580 million. (Kenvue, J&J’s consumer division, also completed an IPO in May as part of a spinout.)
A handful of other companies are lining up to test the waters, too, offering a glimpse into what could be a busier fourth quarter. Three biotechs, Lexeo Therapeutics, Abivax and Kairos Pharma, on Friday filed plans to go public. All three have at least one drug in early-stage human testing, matching analysts’ predictions about which companies would be in the strongest position to launch an IPO.
Still, for the most part, newly public drugmakers aren’t enjoying rising valuations like many that IPO’d in 2020 and 2021 did. As of Monday’s close, only two of the eight biotechs that debuted in the third quarter, RayzeBio and Apogee Therapeutics, were trading above their debut share price. Even well-resourced Neumora Therapeutics, which counted Arch Venture Partners and Amgen among its private backers, has seen its share price sink by a third since its Sept. 14 IPO.
Biotech IPOs in the third quarter 2023
|Company||IPO date||Proceeds||IPO price||Current price, as of 10/2||% change, as of 10/2|
|60 Degree Pharmaceuticals||7/12/23||$8M||$5.30||$0.73||-86%|
SOURCE: Securities filings, Google Finance
A recent report from accounting and consulting firm EY noted a drop in “unicorn” IPOs, or offerings that involved a company valued at more than $1 billion privately. Per EY, no health and life sciences companies to IPO through Sept. 18 had met that criteria, compared to four over the first three quarters of 2022, according to the data.
The findings reflect two concerns held by investors: lack of data and a desire for safer bets amid economic uncertainty. Investors now want to see strong proof of concept and a high-quality team before backing a company in the public markets, said Mike Perrone, a managing director at Baird.
“The higher quality the companies are when they try to come public, the more likely they are to be successful and the more likely it is to create a market environment where more people are interested in participating in biotech IPOs,” Perrone said. “The endgame here is to get the generalist investor interested.”
Activity in other sectors also helps. EY’s report showed that IPOs across all industries have rebounded from lows last year. Successful stock offerings from grocery delivery company Instacart and chip designer Arm gave a boost to Wall Street in September, helping market sentiment.
“The appetite to invest in the sector has not diminished,” said Jack Bannister, a senior managing director at Leerink Partners.
Both Bannister and Perrone said they’ve seen many other companies quietly preparing for IPOs, such as by making confidential filings.
One small thing has changed, though. Having an experimental drug in a Phase 3 trial is no longer as safe as once thought, Bannister said.
“There have been multiple later-stage assets late last year and this year that felt relatively de-risked because they had a deep pool of clinical data to pull from, just completely failing just a few months after an IPO,” Bannister said.
Acelyrin is among the most notable. The California biotech hit a major hurdle in late-stage clinical testing of its anti-inflammatory drug izokibep in September, sending share prices tumbling just four months after a lucrative IPO.