‘A really rational IPO environment’: What does it takes for a biotech to go public now?

After what many considered a “slow” year for IPOs, January has ushered in a string of biotechs filing to go public. But 2024 wasn’t slow—it was actually quite normal.   

“This is a really rational IPO environment,” Sofinnova Investments General Partner Maha Katabi, Ph.D., said during Fierce’s J.P. Morgan Week panel on Jan. 15. “I hear a lot of lament about not enough IPOs. But you know what? It's really great to be in an environment where the right companies are the ones that are accessing the public markets.”

Indeed, 2024 was a much healthier IPO market than the year prior, with activity triggered by a flurry of M&A occurring in the back half of 2023, according to Morgan Stanley Executive Director Chirag Surti.

Fierce panel
Morgan Stanley Executive Director Chirag Surti; Rapport Therapeutics Chief Financial Officer Troy Ignelzi; Sofinnova Investments General Partner Maha Katabi, Ph.D.; Septerna CEO and co-founder Jeffrey Finer, M.D., Ph.D.; and Fierce Biotech Senior Editor Gabrielle Masson (left to right). (Questex / Matt Rickman )

The 18 biotechs that did IPO in the U.S. in 2024—compared to 10 in 2023—were most often clinical-stage companies targeting large, tangible markets, Surti said. Only one traditional preclinical biotech—Metagenomi—went public last year, compared to around a quarter of the biotechs that IPOed in 2020 and 2021, according to Surti.

About two-thirds of the companies that debuted on the public markets last year work in the central nervous system (CNS), immunology and inflammation (I&I) or oncology spaces, Surti estimates.

There’s also another commonality—all the companies going public have planned timelines to their next catalyst, which is typically situated about a year after an IPO.      

One of those biotechs was Septerna, a company developing G protein-coupled receptors (GPCRs) that raised an upsized $331 million IPO in October. Before the public offering, the biotech had mapped out its capital needs up to 2028, according to CEO Jeff Finer, M.D., Ph.D.

“We actually had plenty of cash to get through 2025,” Finer told the Fierce panel. Looking down the line and considering the potential of several more clinical program launches was what spurred the determination that, at some point, Septerna would need to access the public markets.

Management started contemplating an IPO while raising money for Septerna’s series B financing round, which closed in July 2023 at $150 million. Numerous advisors told Finer’s team to look at their catalyst calendar, with the next big date being the company’s first clinical-stage readout slated for mid-2025. That consideration played a large role in the timing of Septerna’s October IPO.

Rapport Therapeutics Chief Financial Officer Troy Ignelzi underscored Finer’s sentiments around the importance of planning, explaining that an IPO should be something biotechs always consider as a way of maintaining optionality.

“I'm of the mindset that you should always be preparing for being public, just like you should always be prepared for any opportunity to raise additional capital,” Ignelzi told the panel. “We're in drug development. It's very unpredictable.”

Third Rock’s Rapport debuted on the Nasdaq in June with an upsized $154 million offering. The CNS biotech is using the funds to advance its small molecule toward proof-of-concept trials in focal epilepsy, peripheral neuropathic pain and bipolar disorder. 

On the investor side, asset derisking plays one of the biggest roles in company evaluation. “It's kind of what we think about day and night,” Sofinnova’s Katabi said.

Regardless of mechanism or type of disease, every field uses metrics that point to success, whether that’s a certain biomarker or clear efficacy benchmark, Katabi explained.  

While phase 3 data is used to definitively demonstrate success, biotechs need to create a storyline consisting of reasons for investors to want to back their program before that late-stage readout, she said.

Presenting a compelling case is more important than ever as the pandemic disappears from the rearview mirror and generalist investors exit healthcare. Add in high interest rates and “the only way that biotech companies can succeed in this environment is to appeal to the specialist investors,” Katabi said.

“Building the story and building the narrative as to why they should own your stock versus the probably 200 other stocks they can pick from in the public market is the most important aspect,” she said.

Rapport’s Ignelzi believes the only way biotech can attract the attention of generalist investors again is by demonstrating that the public companies are quality ones.

“We talk about IPOs like there are supposed to be 65 of them a year,” he said. “We all know that it's one in 10 phase 1 programs that actually makes it to phase 3 and moves forward.” 

“Having those failures in the public market really erodes the confidence of the generalist investor,” Ignelzi added. “So, I think we have to be selective when investors are making these choices. We have to be prudent on the valuations, because that's what's going to bring the investor community more into the mix.”