Week of IPO success stories suggest biotech has reached 'recovery phase' in 2024

Coming off one of the worst periods for IPOs in recent history, analysts have suggested the first two offerings from biotechs this year are proof that the sector is on the road to recovery.

The past two days have seen CG Oncology and ArriVent both cash in on their back-to-back upsized IPOs, netting a combined $555 million. The good news didn't end with each company's initial haul either—CG saw its share price nearly double on the first day of trading, opening at $19 a share and closing out Thursday on $37.17.

The two encouraging results have offered some validation to the cautious optimism expressed to Fierce by various delegates at the J.P. Morgan Healthcare Conference earlier this month. In fact, a peek at the data suggest this week could very well be a harbinger of a good year to come, according to Yaron Werber, M.D., managing director and senior research analyst for T.D. Cowen’s biotech team. 

“There have been 18 years with a positive initial start to the year out of the last 24,” Werber told Fierce Biotech in an interview yesterday. “And in 14 out of those 18 years—or 78% of cases—the sector ends up up for the year.”

Just 38 life science companies went public between 2022-2023, compared to 179 across 2020-2021, according to data from Silicon Valley Bank. That's the lowest in a two-year period since 2011-2012. 

The successful reception of CG onto the Nasdaq, and the queue of three other biotechs behind ArriVent that have also announced plans this year to IPO, suggest there is pent-up demand as a result of the drought in previous years.

The difference now is that investors are clamoring for quality data on mid- to late-stage assets before daring to jump onto Wall Street. CG’s lead oncolytic virus therapy for patients with bladder cancer is in two phase 3 studies, while ArriVent’s EGFR inhibitor furmonertinib is in a late-stage study for patients who have non-small cell lung cancer with EGFR exon 20 insertion mutations. Preclinical gene-editing biotech Metagenomi, which has yet to announce its pricing since disclosing IPO plans, will be a genuine test of investors’ appetite.

Eric Schmidt, a biotech analyst at Cantor Fitzgerald and former CFO at Allogene Therapeutics, said the maturity of the early crop of companies going public this year is indicative of previous warming markets.

“Every time there is a thawing cycle, the folks who open up that window and are well-received in the public markets through IPOs are clinical-stage companies, and [the] later stage the better,” Schmidt told Fierce.

For example, the 2013 class of IPOs—which followed a year when only 10 life science companies went public—included the likes of gene therapy frontrunner bluebird bio, Agios Pharmaceuticals and Portola Pharmaceuticals, which was later acquired by Alexion.

While the reception of the new entrants in 2024 is likely to be much more favorable than in recent years—as evidenced by CG's stock jump yesterday—it's still likely to be “somewhat mixed,” Schmidt predicted.

“I think that investors are very discerning. They're going to be able to figure out which are the higher quality names, and which are the lower quality names,” he said, adding that specialist healthcare investors will likely remain the main buyers of biotech stocks in the near term.

T.D. Cowen’s Werber said January is usually a fairly predictable indicator for the rest of the year, the analyst still doesn’t think 2024 will be “massively great” for IPOs. Instead, the industry will be going through a “recovery phase” this year, he suggested.

“The valuations in the public market are so cheap, we still need to see a momentum,” Werber added. “As money starts flowing [to] smaller cap, and the sector starts working—or continues to work—I think that those are a catalyst that starts getting IPOs to work.”