Are there bright times for biotech IPOs ahead?
Despite the recent stock market rally and declining volatility, IPOs are rather rare in many industrialised countries –not least for seasonal reasons. The main reason for this, however, is the aggressive monetary policy of the central banks, with more than ten interest rate hikes in both Europe and the US.
As inflation has weakened significantly worldwide this year, a turnaround in interest rates cannot be completely ruled out, which in turn should boost activity on the primary markets.
This is already evident in the USA, where eight biotechnology companies have gone public in the first few weeks of the year: Cancer drug developers ArriVent BioPharma and CG Oncology, diabetes and obesity drug developer Fractyl Health, psychiatric drug maker Alto Neuroscience, autoimmune company Kyverna Therapeutics, pain treatment company Chromocell Therapeutics, small molecule developer Telomir Pharmaceuticals, and gene-editing firm Metagenomi. Some of them had a surprising post-IPO-share price performance, especially CG Oncology, which went public at the Nasdaq Global Select Market at US$ 19.00 per share and is now trading at US$ 47.93 per share, a +152.3% increase.
Although it´s still early days in a new year: Biotech companies are among the year’s best-performing debutants in an otherwise choppy IPO market that has seen mixed pricing for many IPOs. Many retail investors who seem to have suddenly realised three years ago that drug making could be risky, are not used to these figures. From this perspective, 2024 could mark the end of the biotechnology IPO drought.
But despite sustained signs of life for the first time in years, the window is not open yet, at least not for all biotechnology companies and not everywhere. While on average, the share price performance of US biotechnology IPOs was 18.6% to date, preclinical IPOs performed worse, with -12.1%, than those in their clinical stage, with +37.0%.
This is an indication that investors remain selective and skewed towards late-stage, de-risked types of assets, those with clinical data available. European biotech companies intending to go public should keep in mind that it is a company’s job to show proof of concept in patients. Going public beforehand means accepting substantial valuation discounts, especially in Europe.
Author: Peter Thilo Hasler, founder and research analyst of Sphene Capital, article orginally published in European Biotechnology Magazine Spring 2024
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