Big boys: Novartis AG’s headquarters in Basel, Switzerland. The company and its competitors are on the lookout for acquisition targets as smaller companies go public. —Bloomberg
NEW YORK: Drug developers are capitalising on the industry’s momentum by tapping public investors for the first time, as corporate takeovers and a welcoming market lift optimism about biotechnology.
When Kyverna Therapeutics Inc and Metagenomi Inc sell shares in the coming days, they’ll mark the fourth and fifth biotech initial public offerings (IPOs) on US exchanges in 2024.
The first three raised US$786mil collectively, in the strongest start for the sector since 2021, data compiled by Bloomberg show.
Each of the three companies that debuted this year boosted the size of their offerings before they began trading and share gains piled up, with ArriVent Biopharma Inc jumping as much as 22% above its IPO price, Alto Neuroscience Inc rising up to 36% and CG Oncology Inc doubling.
They are among the year’s best-performing debutants in a choppy IPO market that has seen mixed pricing for some of the biggest first-time share sales.
With a closely-tracked biotech exchange-traded fund up 38% from an October bottom as big drug makers like Novartis AG and Bristol Myers Squibb Co strike takeovers, the momentum for new offerings and deals is building.
“There’s been a nice bump from early January, so it wouldn’t surprise me to see it front-end loaded,” said Jonathan Norris, a managing director with HSBC Innovation Banking, who expects about 25 venture capital-backed biotech IPOs in the US and Europe this year.
There will be “more later-stage than earlier companies with a focus on drugs that have opportunities for catalysts in the near-term.”
Kyverna and Moderna Inc-backed Metagenomi fit into the earlier-stage bucket.
Kyverna’s lead cell therapy is expected to enter a mid-stage trial, while gene-editing focused Metagenomi hasn’t begun testing in humans yet.
The two companies are seeking to raise more than US$410mil combined. Kyverna sold shares Wednesday evening before a debut yesterday, while Metagenomi’s pricing was yesterday with trading today.
CG Oncology’s rally, making it the year’s top US IPO that raised more than US$10mil, is a sign investors are willing to back companies with more developed drugs.
The biotech has a pair of late-stage cancer studies ongoing with some results anticipated this year.
The pickup comes after firms were forced to be nimble with their spending when a surge in fundraising ran into a sharp market correction.
During the pandemic, when meme stocks and blank-cheques were all the rage, biotechs that were years from testing their drugs on humans were snagging billion-dollar valuations.
That environment isn’t coming back any time soon, according to investors like Andy Acker, a portfolio manager at Janus Henderson.
A “return to the heady days of the pandemic when biotech stocks could benefit regardless of the quality of a company’s pipeline or balance sheet” isn’t in the cards, Acker and portfolio manager Daniel Lyons wrote last week.
While the sector has been bolstered by takeovers, as well as increasing investor risk tolerance and expectations for the US Federal Reserve to swiftly cut interest rates this year, it remains a stock picker’s market, Acker and Lyons wrote, “with compelling opportunities available for those investors willing and able to deploy capital in the right opportunities”.
Drug developers have been actively raising cash through sales of new shares to public investors this year.
The industry has raised nearly US$5bil via follow-on offerings, data compiled by Bloomberg show, more than double the amount seen through Feb 7 last year. — Bloomberg
