Twenty-five biotechs have used the IPO route to go public this year—with five of those debuts occurring this month alone. It’s the most IPOs since 2021, when the industry recorded 78 during the height of the COVID-19 pandemic.
This year has already ushered in the most biotech IPOs since 2021, with the market quickly approaching “escape velocity,” experts say.
“What I mean by escape velocity [is] the feeling among both companies and investors that IPOs are working again,” Jack Bannister, senior managing director of equity capital markets at Leerink Partners, told BioSpace in an interview. The investment bank has helped manage three of August’s five biotech IPOs.
“For three or four years, if you were [a biotech] looking to get public, it was almost a default ‘no’ from a lot of investors,” Bannister said. “IPOs weren’t working.”
During the early days of the COVID-19 pandemic, money flowed freely into the sector, with more than 70 biotechs going public in 2020 and 2021 each. The period saw all types of investors flock to the space, with “every mutual fund, every generalist, every hedge fund, every healthcare fund” getting in on every deal “because every deal was working,” Bannister explained.
But most of these investors weren’t in it for the long run, with the “frothy” conditions ultimately proving unsustainable, he said. Investors pulled back and biotech IPOs plummeted for four years, with only eight biotechs going public last year.
“Being an IPO was not an advantage—in fact, it was a disadvantage,” Bannister said of the time. “In turn, it was just slow.”
But the tides turned this year, with 25 biotechs taking the IPO path so far. And the environment is much healthier than the extreme highs of 2020 and 2021—when every deal was “just a pure momentum play,” Bannister said.
A key difference this time around is that biotech IPOs are attracting a healthy mix of backers, and those investors are being highly selective about which companies they align with.
“They’re being discerning in what they care about, but they’re doing it also with a ton of conviction, and by conviction, I mean dollars,” Bannister explained. Investors are being choosy but putting down large amounts of money, like $100 million, when they do back a company.
That conviction helped fuel record-breakers like Kailera Therapeutics’ $625 million debut and Parabilis Medicines’ subsequent $670 million IPO.
While the large sums may raise fears of the industry over-correcting once again, Bannister isn’t concerned. “As long as it’s discerning, that tells me it’s healthy, and as long as the funds have that sort of size of capital to commit, the deals are going to go well,” he said.
Making the public leap
On the biotech side, the companies that have opted to go public are “high-quality” and mostly later-stage with clinical inflection points in the near future. The biotechs are also, by and large, being properly priced, Bannister said.
“Valuation matters. Companies who have leaned in too hard on value and tried to push at too high of a price haven’t traded as well this year,” he told BioSpace. “Those who have been much more conservative on price have traded well.”
That positive market performance has reassured investors, in turn driving further investment, Bannister explained. Starting with a handful of IPOs in late January to early February, “those for the most part went well and investors made money,” he said. “Companies saw that and they said, ‘Okay, I want to do my IPO.’”
The cycle has since repeated itself, with the most recent wave occurring at the end of July and first half of August.
“The latest group of August IPOs are all above deal price and trading well,” Bannister said. “Odds are that means we see an even bigger collection in September, October, and it just builds on itself that way.
“For now, it feels very healthy,” he added, “and my guess is it’ll stay—it’ll continue to get busier and busier.”
For that to happen, Bannister continued, “we need these funds to continue to write big checks.” In addition, keeping the cash flowing requires M&A activity, clinical data wins and strong broader market dynamics, he said.
What will start to concern investors, on the other hand, is if preclinical companies try to rush to IPO or teams pushing too hard on valuation—two things Bannister dubbed “yellow flags.” Those signals prompt investor caution, which subsequently means those companies won’t trade as well—something that would impact the entire industry and challenge go-public efforts by higher-quality companies.
“We haven’t seen it yet at all, but that would be the concern,” he said.
Barring such yellow flags, however, Bannister predicts the IPO momentum will continue for biotech. “This year, we’ll probably end with 30 [IPOs], which feels again more normalized, more like 2018, 2019,” he said. “That’s the best benchmark we have for what’s normal in a market that obviously swings wildly.”
