Despite Tough Market, Some Life Science IPOs Find Success

biotech market

Pictured: Overlaid photographs of buildings, stock charts and a microscope and syringe/iStock, MadamLead

Just this week, Alto Neuroscience filed to go public—at least the fourth company this year—in yet another sign that the biotech IPO market is rebounding from 2023’s weak market. Among the positive signs are the success of those few companies that did make the leap to the public market in 2023.

“This year there’s a different energy, where people are really excited to meet each other and have conversations,” medical oncologist Jakob Dupont, an executive partner in private equity at Soffinova Investments, said of the sentiment at last week’s JP Morgan Healthcare Conference in San Francisco. “We’re also bolstered by all the mergers and acquisitions activity that we’re seeing with Big Pharma investing in the sector . . . and some of the recent IPOs that have been successful.”

He added that the Nasdaq Biotechnology Index was up from the previous 10 years going into the annual conference.

Norwest Venture Partners’ Brian Matesic, who focuses on venture capital in the healthcare sector, said those with highly differentiated products already in clinical trials performed particularly well. Other factors that helped companies go public last year, Dupont added, include exciting technology, de-risked clinical trial data and a clear path to FDA approval. 

And for the companies that did successfully go public during the recent tough market, Matesic said they might be better off for it.

“With the outlook for biotech IPOs looking more favorable in 2024, those companies that braved the challenging market last year will find themselves ahead of the potential influx,” he said.

Investor Support Critical for Going Public

One such company was CARGO Therapeutics, which announced its IPO bid in November. When CARGO CEO Gina Chapman joined the team in May 2022, the company employed 11 people. CARGO was in stealth mode, so she had to work quickly to create a compelling story for investors.

“I’ve done a lot of builds in my career—I built franchises—and we did not have a long time to launch and commercialize [CARGO], so getting the right team in place to do that was forefront on my mind,” Chapman, formerly of Genentech, told BioSpace. She noted that the market looked bleak—“it was looking like it was gonna get tougher before it got better”—but she heeded the advice of investors that “going public would enable me to have access to capital that I wouldn’t have in the private market.”

Critically, Chapman added, she was able to bank on the product the company was developing: CARGO plans to use around $220 million of the proceeds from the IPO to fund Phase II trials of its lead candidate CRG-022, an autologous CD22 CAR T cell therapy designed for patients whose large B-cell lymphoma (LBCL) is relapsed or refractory to CD19 CAR T cell therapies. “How could somebody not see this as a worthwhile thing to invest in? A potentially curative therapy, a proven regulatory path forward . . . and the data de-risked tremendously.”

Sure enough, she said, she was able to attract “very strong, high-quality, committed investors in the [Series] A.” It made it easier to go public, Chapman said, because she actually had investors that were not able to invest in CARGO's Series A round, so the company had continued demand.

CARGO sought more than $315 million and ultimately raised $281 million, with 18.8 million shares at $15 each.

“In a tough market, if you have that investors’ support and you have others who want to come in, you can do it," Chapman said.

From Going Public to Getting Purchased

Another standout from the small 2023 herd of biotech IPOs is RayzeBio, which in September announced its offering of 17.2 million shares for a total of $311 million. Four months later, the company was acquired by Bristol Myers Squibb for $4.1 billion.

“Filing an IPO is not the finish line. In some ways, it’s actually the starting line,” said Dupont, whose company Soffinova Investments was a major investor in RayzeBio and held a board seat. “The whole point of an IPO is to raise money so that [companies] can actualize their plans, maybe enroll that clinical trial, file for approval with the FDA . . . what we call use of proceeds.”

Getting acquired after the initial successful IPO was a “Cinderella story,” Dupont said. “It’s important for companies not only to think about what do they need to go public, but what do they need to be successful going forward after they’ve gone public, as well.”

One of the reasons for RayzeBio's success was its unique radiopharmaceutical technology, which hits a certain protein produced by a cancer cell with a radioisotope. There’s been a lot of interest in this and other types of next-generation protein therapeutics that deliver a toxic payload, such as antibody-drug conjugates, Dupont said.

Mollie Barnes is a freelance science writer based in Los Angeles. Reach her at mollie@100yearsco.com. Follow her on Threads and Instagram @shejustlikedtogo and see more of her work at molliebarnes.contently.com.

Clarification (Jan. 17): This story has been updated to reflect that Brian Matesic pointed to companies with highly differentiated products in clinical development, not on the market, as doing well.

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