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Biotech CEOs weathering a lean investment market got some good news from a panel of experts on Feb. 27. Following a couple of painfully slow years, the biopharma market is looking ready for a healthier pace of initial public offerings, or IPOs.
The macroeconomic situation is improving and investors have a lot of “dry powder” after reaping earnings from mergers or simply staying out of the market for a couple of years, said panelists at the Biotechnology Innovation Organization (BIO) CEO and Investor Conference in New York.
“There are a couple of tailwinds that we can point to that kind of are driving the enthusiasm,” including the Fed giving indications of lower interest rates and a lot of M&A activity providing investors with cash to reinvest, said Johanna Grossman, Head of Healthcare & Life Sciences, Capital Markets at the New York Stock Exchange.
She noted how many headwinds were overcome in 2023, with a banking crisis, political divisions, inflation and interest rate hikes, geopolitical unrest, and a pending government shutdown.
“What is pretty remarkable actually coming out of 2023 is how quickly the market adapted” to negative externals, Grossman said. “We have data in 2024 of companies that have tapped the public markets that are trading fairly well. … So I would say we’ve had a solid start for 2024.”
Who’s ready for an IPO?
Companies whose drug development is still preclinical, as well as firms with clinical data, are beginning to talk with investors and looking into going public, said James Antonopoulos, Managing Director, Head of Healthcare Banking – ROTH MKM. He said firms can consider seeking investment regardless of development stage – if they can stand out in the crowd.
“There’s a lot of companies out there searching for capital. You need to differentiate yourself from your peers. It’s difficult and it requires working with advisors to put you in front of the right party, the right investors,” he said. “The companies that fare best in approaching the IPO market are companies that have had support from VCs, including crossover funds to help support the IPO.”
Grossmann and Antonopoulos expect these companies can expect the market to pick speed in up the second half.
When the window for IPOs does open, companies need to be prepared, by starting now, said Ryan Starkes, Partner, Life Sciences Practice Leader, and Raleigh Market Leader at Centri Consulting.
“Get ahead of it now and you’ll be ready when the time comes and you can take advantage of it. You can present yourself in a much better light. Do your due diligence now,” he said. “Let the science dictate the value. Don’t let financial statements and things of that nature get in the way.”
Starkes said he had been discussing the need to prepare with his clients, “who tend to be middle market, maybe a little bit early stage.” He tells clients “we need that support to get through that transaction. They’re excited about the opportunity and those discussions, and now they’re planning.”
Grossman agreed. “From an investor perspective, it’s good to take the time to get your story out there, continue to meet with investors and tell them what you’re working on, what your milestones are. And give them those frequent updates showing that you are actually progressing, including reaching the milestones.”
What investors want
Antonopoulos said orphan drugs for rare diseases, which have been drawing increasing investment, may be losing some popularity.
“We are seeing a trend toward larger markets, turned back to oncology,” he said.
Adam Stone, Chief Investment Officer & Head of Research at Perceptive Advisors, sees growth potential in some of the newer technologies. “I happen to think cell therapy is going to be an enormous field,” he said.
These companies are able to stand out, he explained. “Companies can’t just make themselves differentiated. You either are or you aren’t,” Stone said. “But that’s really what we look for in areas where we consider investment—that we believe is fundamental. And I do think there are a lot of truly differentiated cell therapy companies out there.”
