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Crunching the numbers on the first half drought for biotech IPOs

Dive Brief:

  • Halfway through 2022, newly priced biotech stock offerings are off to their slowest pace in years as a deepening economic downturn continues to chill investor interest in the sector.


  • Fourteen drug developers have raised about $1.7 billion so far in 2022, a fraction of the 61 that raised close to $9.5 billion in the first half of 2021, according to data compiled by BioPharma Dive. The pace of IPOs in 2022 is also trending well below the previous three years, each of which included at least 26 offerings between January and June.


  • The average size of biotech IPOs is falling, too, as young drugmakers no longer command the valuations they did before the downturn. Even with Bausch + Lomb’s $630 million IPO, new stock offerings are averaging $123 million in 2022, far less than each of the last two years and more in line with what biotechs averaged in 2018 and 2019.


Dive Insight:

After a decade-long run that was capped by a record-breaking 2021, biotech IPOs have ground to a halt.

The last biotech to go public, eye drug developer Okyo Pharma, did so in mid-May and raised less than $3 million, according to BioPharma Dive’s database. Two biotechs, Genelux and Shuttle Pharmaceuticals, have publicly outlined IPO plans since the end of April, and they’ve joined a queue of companies mostly targeting modest offerings. No IPOs have been scheduled for more than a month.

The dry spell is the result of what a recent report from accounting firm Ernst & Young referred to as a “tectonic shift” in the financing environment for biotechs. In 2020 and 2021, an all-time high of nearly $105 billion was invested in private companies and IPOs, and valuations reached their peak in February 2021 as COVID-19 vaccines and drugs helped navigate the country out of the acute phase of the pandemic.

Investors then moved on to less expensive sectors, aiming to capitalize on a post-pandemic economic recovery. The speedy ensuing growth, combined with inflation and a fast rise in interest rates, sent stock prices plunging downward and made IPOs “virtually non-existent,” the report said.

The drought isn’t exclusive to the biotech sector. Overall, 21 IPOs raised $2.1 billion in the second quarter, the slowest three-month period for new stock offerings since 2009, as record inflation spurred fears of a recession, according to IPOs research firm Renaissance Capital. Median deal size shrank to $22 million, a multidecade low, and new filings hit their lowest numbers in six years, the report said.

Many biotech stocks have also been in freefall. Only 12 of the 118 biotechs to have priced IPOs since the start of 2021 trade at or above their offering price. Roughly a quarter of all public biotechs trade below the value of their cash reserves, according to analyst firm Mizuho Securities. Fifty-four companies have announced layoffs in 2022, versus only one in the first half of 2021, the industry trade group BIO said this month.

Some of those involved with IPOs have expressed confidence, in interviews with BioPharma Dive, that new offerings will resume this year. Last quarter, Jordan Saxe, the head of healthcare listings at Nasdaq, said the queue of more than 75 drug companies planning IPOs remained intact and were waiting for the right moment. And many venture firms, still flush with cash, have the wherewithal to build their companies differently and wait longer.

Upon closing a new $1 billion fund, Third Rock Ventures partner Jeffrey Tong noted the firm is now starting companies with “a little bit more maturity at the time of launch.”

Yet others wonder if biotech needs less companies, not more, to regain its footing. Mizuho analysts believe anywhere from a quarter to a third of all publicly traded biotechs need to “go away,” via delistings, reverse mergers or acquisitions, before the sector reaches a “fundamental point of normalization.”

At least one exit route, dealmaking, appears to be picking up. Fourteen buyouts worth roughly $23 billion combined were announced in the second quarter of 2022, according to BioPharma Dive’s M&A database.