Biotech IPOs Experience Gradual Resurgence in Q3 2023 Amid Ongoing Investor Caution

Initial public offerings (IPOs) in the biotechnology sector are witnessing a resurgence, with eight companies raising $1.1 billion from July to September 2023, according to recent data. This is a significant increase compared to the previous quarter, when only four biotech firms raised around $580 million.

Despite the uptick in IPOs, market reactions have been inconsistent. By Monday, only two of the eight biotechs that launched their public offerings in the third quarter, RayzeBio and Apogee Therapeutics, were trading above their initial share prices. In particular, Neumora Therapeutics, supported by Arch Venture Partners and Amgen, experienced a dramatic decline, with its share price falling by a third since its IPO on September 14.

In contrast to the surges in valuations seen in 2020 and 2021, newly public drugmakers are facing investor skepticism due to concerns over insufficient data and a preference for safer investments in the current economic climate. Mike Perrone, a managing director at Baird, noted that investors are looking for strong proof of concept and a competent team before investing in public biotech companies.

A report from EY highlighted a drop in “unicorn” IPOs, referring to those involving companies valued at over $1 billion before going public. According to their findings, no health and life sciences companies have reached this benchmark in 2023, in contrast to four during the same period in 2022.

Nonetheless, prospects for the fourth quarter appear to be brighter, with three biotech firms—Lexeo Therapeutics, Abivax, and Kairos Pharma—having recently filed to go public. Each of these companies has at least one drug currently in early-stage human testing, aligning with analyst predictions regarding candidates best suited for IPOs.

Jack Bannister, a senior managing director at Leerink Partners, indicated that investor interest in the sector remains robust, with many companies quietly preparing for IPOs through confidential filings.

However, perceptions surrounding the safety of experimental drugs have shifted. Bannister noted that having a drug in a Phase 3 trial is no longer seen as a guaranteed safety measure. This changing outlook is evident, as several later-stage assets have faltered shortly after their IPOs, despite having substantial clinical data.

A key example is Acelyrin, a California-based biotech that faced a major setback in late-stage clinical testing of its anti-inflammatory drug izokibep in September, leading to a significant decrease in its share prices just four months after a successful IPO.