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How a busy year for biotech IPOs measures up at the three-quarter mark

Two records set one year ago could fall, as the number of biotech companies going public and the total amount they’ve raised are each on pace to eclipse 2020’s totals.

In 2020, 71 biotech IPOs of at least $50 million — the cutoff for BioPharma Dive’s database — pulled in roughly $15 billion combined, a number that nearly tripled the totals of 2019 ($4.7 billion) and 2018 ($5.4 billion). This year, 68 biotechs have raised over $12 billion through three quarters, underscoring investors’ continued interest in the sector.

But IPO performance has faltered. As of Friday’s close, 36 of the biotechs that went public in 2021 were trading below their offering price. The average return for this year’s class is 5%, versus 38% for the 2020 class. The size of company offerings has trended downwards as well, with the average raise from analyzed IPOs falling from $207 million in 2020 to $176 million this year and declining each of the last three quarters.

Those numbers could represent a reversion to the mean, however. Biotech IPO valuations reached all-time highs in 2020 and early 2021, fueled by the continued availability of capital, the industry’s role in developing coronavirus vaccines and drugs and the progress of cutting-edge technologies like CRISPR gene editing.

Compared to five or 10 years ago, IPO valuations for early-stage biotechs are still at historic highs, said Atlas Venture partner Bruce Booth in July. Private investors and the “crossover” backers participating in mezzanine rounds are still “well in the money” on most of these stocks, Booth said in an email.

“The macro longitudinal view is that the IPO markets — and the biotech capital markets in general — are super strong,” Booth said.

Yet recent trends suggest some investors may have “fatigue over high valuations,” wrote Jefferies analyst Michael Yee in a July note to clients. “Often companies [are] just trying to outdo each other for who can have the highest valuation when they go out.”

Some biotechs given lofty initial valuations are still prospering despite the recent pullback. Shares of Verve Therapeutics — the year’s 10th biotech IPO by size — are up more than 160%, for instance, making the gene editing biotech the year’s top performer by a healthy margin. Shares of Recursion Pharmaceuticals, which raised $436 million in the year’s second largest offering, have stayed above issue as well.

But the rest of the top five, including cell therapy developers Sana Biotechnology and Lyell Immunopharma, have struggled to do so.

In the meantime, biotechs are seeking IPOs earlier and earlier. Twenty-two preclinical drugmakers have already gone public in 2021, surpassing the total reached in each of the three previous years. The glut of oncology biotechs has grown as well, with the 70 cancer drugmakers that have priced offerings over the last two years more than doubling the 32 that debuted in 2018 and 2019.

Small molecule drugs are still the most commonly drugmaking approach for biotechs going public, followed by biologics such as antibody drugs. But genetic medicines continue to gain traction, with 16 IPOs so far this year and three more currently on deck — a record total already.