IPOs Fizzle
Out In The Fourth Quarter

IPOs Fizzle Out In The Fourth Quarter

Just three biotech companies floated in the last three months of 2023, but there may be hope for a resurgence
next year.

The tail end of the year is often a weak period for biotech flotations, so perhaps the fact that the companies that went public in Q4 of 2023 managed to raise more than those in either Q1 or Q2 is a hopeful sign. Still, the $617m raised over the past three months is a retrenchment from the $1.3bn seen in Q3 of 2023. And only three companies went out, the fewest of any quarter last year. The IPO scene is a long way from buoyant.

“It has definitely not been the greatest year,” Seth Farbman, chairman and cofounder of the stock transfer agency VStock Transfer, explained. “Two years ago when IPOs were super active it didn’t really matter how far along the course some of the biotechs and pharmas were, because the opportunities were plentiful. Now, the banking firms are being a little bit more selective.”

The analyses below track IPOs of companies developing prescription drugs, cell and gene therapies on Western stock exchanges; Asian and other markets are excluded. It also excludes spin-outs, so as to concentrate on younger companies seeking growth capital.

Key Takeaways

Just three floating biotechs raised a total of $617m in the fourth quarter of last
However, two of the three have seen their share prices grow since
And the IPO climate might improve in the coming year, with obesity companies particularly well placed

Farbman does expect an uptick in activity in the coming year, however. “I don’t think that it’s all doom and gloom. There’s still hope, particularly for 2024, that the IPO market will see a flurry of activity.” He believes that many biotechs are putting in work behind the scenes to ready offerings for the coming months.

In the past quarter, though, demand seemed to fall. Companies that floated in the past quarter priced at an average 11% discount to the range given in their prospectuses. This pricing discount (premium) is a rough proxy for how receptive bankers believe the markets will be. The average for Q4 2023 is the lowest since the first quarter of 2022, which is not an encouraging sign.

That said, it is perhaps unwise to extrapolate too much from a dataset numbering three.

So far the most successful of these recent debutantes – as measured by the increase in share price from float to 29 December – is CARGO Therapeutics. Notably, this was also the biggest offering of the quarter, suggesting eagerness on the part of investors for CARGO’s CAR T-based therapies.

But “bigger is not always better,” Farbman said. Anyone who followed the travails of Acelyrin, which floated in May only to endure a share price collapse after a clinical failure, will agree.

When all the companies that floated last year are considered, the winner, in terms of share price growth to year end, is RayzeBio, Inc.. The radiopharmaceutical specialist had seen its share price tick up by nearly 70% in its first three months on the NASDAQ. Then Bristol Myers Squibb swooped, paying $62.50 per share – more than double the previous day’s closing price – in a deal worth $4.1bn in total.

The next three biggest share price rises belong to companies active in hot areas of research – Structure Therapeutics, Inc. in obesity and diabetes, and Genelux Corporation and Intensity Therapeutics, Inc. in cancer.

Structure might have taken the top spot were it not for a misstep just before the year was out. A Phase II trial of the group’s lead product, the oral GLP-1 agonist GSBR-1290, met its endpoints but yielded weight loss figures lower than those achieved by Eli Lilly and Company’s comparable product orforglipron. Structure’s shares nearly halved as a result. Investors can perhaps console themselves with the thought that the company’s stock still ended the year having nearly tripled from its float price.

Farbman picked obesity therapy developers as good prospects for future IPOs. “People are sitting on the sidelines and being patient. The money is there. People are just waiting for the right opportunities,” he said. “Weight loss medications have caught the eye of the investment community.” He also highlighted dermatology as a subject of interest.

There are steps private companies seeking to float can take to increase the chances of getting away successfully, whether they are in hot areas or not.

“Companies have to do a good job at storytelling,” Farbman said. “In today’s environment, there has to be a plethora of approaches if a company wants to really get the investment community to take notice of them.”

Social media, traditional press and of course roadshows can be useful means of grabbing investors’ attention, he said. “Give them a reason to want to jump in and see the value in the stock today, rather than wait six months.”

If the biotech IPO climate is to recapture the glory days that began three years ago, companies ought to take heed.