Analysts at Jefferies have tracked a doubling in the number of private life science financing rounds in two years. History suggests many of the companies backed since 2018 could IPO over the next two years, creating the next wave of biotech IPOs.
Michael Yee and his colleagues at Jefferies identified more than 500 life science investments from the past few years. The analysis of the data set quantified the impression that activity is on the up.
In 2017, a typical quarter featured 20 to 30 investments in life science companies. Today, the rate is up in the 40-to-60 range, showing the extent of financing activity has doubled over a relatively short period of time. The average size of rounds across the whole data set is $48 million.
Venture capital funding has risen in line with the uptick in financing activity. Jefferies figures show VC funding is at record levels of up to $30 billion a year, compared to an annual level of below $10 billion five years ago.
Jefferies’ analysis of the data set reflects an interest in the flow of biotechs from private to public markets. The level of IPO activity in 2018 and 2019 was driven by companies funded privately in 2017 reaching the point that they felt ready to tap public investors for funding. If history repeats itself, the timeline suggests biotechs funded privately over the past two years will go public in 2020 and 2021.
The doubling in the number of quarterly private financing rounds between 2017 and 2019 means the wave of IPOs over that period could exceed surges in activity seen in the recent past. However, the analysts cite recent deals to question whether that will come to pass.
BlueRock Therapeutics and Peloton Therapeutics both raised sizable private rounds toward the end of 2016 and start of 2017, putting them among the clutch of biotechs that would IPO this year based on Jefferies’ timeline. Peloton got as far as setting terms for an IPO, but neither it nor BlueRock will land on public markets.
Merck persuaded Peloton to drop its IPO plan by proposing a buyout deal worth around $1 billion upfront plus milestones. BlueRock never got as far as setting terms, choosing instead to accept a bid from Bayer. A shift in the proportion of companies that choose to sell up rather than go public could take the top off the crest of the anticipated IPO wave.