Drug developers that have raised more than US$10mil in US initial public offerings (IPOs) this year have largely faltered with six of the 11 firms diving below their debut prices and the median decliner trading 45% below the offer price. — Reuters
NEW YORK: After a string of lacklustre deals, the biotech industry is looking to four debutants expected to price first-time share sales in the coming weeks to see if they can reignite the sector.
Drug developers that have raised more than US$10mil in US initial public offerings (IPOs) this year have largely faltered with six of the 11 firms diving below their debut prices and the median decliner trading 45% below the offer price, data compiled by Bloomberg showed.
The likes of BioAge Labs Inc and MBX Biosciences Inc will seek to buck that trend with industry bankers and lawyers saying the market’s reaction to the next batch will signal whether others can get through the door this year or at the start of 2025.
“A stable or uptick in the stock of the four that will launch in September would have a tailwind effect,” for the companies that could debut this year or wait till 2025, said Seo Salimi, co-head of the equity capital markets practice at law firm Paul Hastings LLP.
For Bicara Therapeutics Inc and Zenas Biopharma Inc, which have shown so-called proof-of-concept data – results that suggest their drugs could be successful in later-stage studies – strong debuts would indicate broader interest in early-stage drug developers is improving.
For BioAge, it’ll also test the market’s appetite for a weight-loss drug start-up.
The binary risks surrounding developing new medicines make biotech a volatile sector.
In times of market turmoil, generalist investors are quick to dump shares of companies that have therapies facing years of research and development before ever being sold.
The fallout from a rush of drug-developer IPOs in 2020 and 2021 – some US$46.5bil was raised over the two years which was more than the eight years prior combined – left many non-specialists scarred.
Drug developers have raised US$2bil this year via IPOs through Sept 3, a 24% jump from the same time last year.
This is although nearly two-thirds of proceeds were raised in the first two months when the industry saw a rush of new issues, data compiled by Bloomberg showed.
With less than US$800mil raised in the subsequent six months, the industry’s proportion of US IPO proceeds has declined to 6.5% from 17% through February, the data showed.
The Nasdaq Biotech Index has gained 9.6% this year, fuelled by booms for larger players like Regeneron Pharmaceuticals Inc and Alnylam Pharmaceuticals Inc, while the average newly-listed company that raised more than US$10mil is little changed from its debut.
Even worse, four of the new companies closed down in their first day of trading.
The prospect of interest rate cuts from the US Federal Reserve, expected to begin in about two weeks, could further entice investors to make riskier investments.
While it takes time for lower rates to work their way through to balance sheets, strong performances in the after-market will be critical for private biotech companies seeking to go public in the next five months.
The prospect of more risk-tolerant investors and a stretch of wins in September could provide the jolt needed to end the year in a strong position before things really open up in 2025.
“Biotech could have a great fourth-quarter, we have a great pipeline,” said Louis Lehot, a partner at Foley & Lardner. “Investors in biotech IPOs are here and ready to put money to work.” — Bloomberg
