Biotech company IPO has a blowout, and the future can be expected
For those who make investment decisions based on income and expected returns, biotech IPOs are unlikely to happen. New companies entering the market are generally unprofitable, and most companies have zero revenue. Listing is primarily a means of raising funds for clinical trials and is expected to show a deficit in the next few years.
This model may be one of the reasons why venture capital media (including Crunchbase News) is only willing to report a small portion of biotech IPOs. It’s even more exciting to see well-known Internet companies become famous on the first day of listing, or to ridicule underperforming startups.
However, due to our dedication to science and technology, we missed the observation and understanding of the overall situation. In fact, biotechnology and healthcare start-ups IPO much more than technology companies. For example, in the second quarter of this year, at least 16 US biotech and healthcare companies that were supported by venture capital were listed, compared with only 11 technology startups. According to Crunchbase, biotech companies have more IPOs than technology companies in the past four years.
In the next analysis, we tried to speed up the listing of biotech companies, assess our position in the cycle, and focus on emerging companies.
Technology company IPO momentum is insufficient, biotechnology company leads
As mentioned above, the US biotech company's IPO has surpassed technology companies in most years. However, biotech companies have raised less money, in part because the IPOs of the largest technology companies tend to be much larger than the IPOs of the largest biotech companies. In the chart below, we compare the situation of the two industries over the past four years.
From a global perspective, these numbers are even higher. Based on Crunchbase's data, we have produced a chart of the IPO data of biotech and healthcare companies supported by global venture capital over the past four years. Although we achieved half of the 2018 target, biotech and healthcare companies' IPOs have raised more funds than any of the previous three years.
Fundamental drive, cycle expansion
Obviously, we are in the upswing cycle that startups are facing. The venture capital company has sufficient funds, and the scale of financing has been expanding in the later period. The speed of IPO and M&A activities is also accelerating.
So what does this mean for biotech company IPOs? The speed and scale of IPOs have risen. Is this mainly the result of the bull market? Or, is the list of candidates before the listing more attractive now than in the past?
We asked Bob Nelsen, co-founder of ARCH Venture Partners, a leading biotechnology investment company. His view is that this is a "fundamental drive, cycle expansion" IPO boom.
More and more companies are starting to follow the trend and IPOs, because startups are innovating faster than they used to be. Nelson called it "the result of biotechnology investment and innovation over the past 30 years, which ultimately led to essentially data-driven innovation." The results have brought more treatments, disease-modifying therapies and prevention technologies.
At the same time, in the biotechnology market cycle, we are also in an optimistic rising phase. This has prompted companies that remain private under other conditions to try to go public, and has provided even greater results for emerging companies that have embarked on the IPO path.
A recently launched large-scale IPO is a biotechnology company called Rubius Therapeutics. The drug developed by the company is based on genetically engineered red blood cells. This week, the five-year-old company raised $241 million with an initial valuation of more than $2 billion, making it the largest biotech company listed in 2018. Cambridge, Mass. The company has previously raised nearly $2.5 billion in venture capital and is still in pre-clinical trials.
This year, in addition to the above, there are a number of other companies' large IPOs, including drug development companies Eidos Therapeutics and Homology Medicines, which are valued at about $800 million. Tricida also conducted an IPO campaign with a valuation of approximately $1.2 billion. (See the full list of global biotech and healthcare companies listed in 2018.)
As for the performance of the market, it has been fluctuating up and down, but there are also some obvious increases. Last year, biotech companies were among the best in the IPO of the US exchange. Renaissance Capital's data shows that biotech companies account for four of the top six IPOs, including pharmaceutical developers AnaptysBio, Argenx and UroGen, and an agricultural bio-starter, Calyxt.
Looking to the future
As the situation improves, biotech venture capital firms (usually optimists) see several reasons why biotech companies' IPOs can continue to rise.
Nelson pointed out that in his view, the internal innovation of large pharmaceutical companies and biotechnology companies is lagging behind. They increasingly need to acquire startups and recently listed companies to maintain their competitiveness and establish new product channels.
In addition, there is a large amount of new capital injected specifically for healthcare startups. In 2017, in the United States, venture capitalists focused on the healthcare industry raised a total of $9.1 billion. According to data from Silicon Valley Bank, this figure has increased by 26% compared to 2016.
Venture capital firms that invest in technology and life sciences through a single fund have also received more funding. These include a number of established venture capital firms that have sufficient funds to invest in, such as Polaris Partners, Founders Fund, Kleiner Perkins and Sequoia Capital.
However, Nielsen observed that in the depths of the IPO bull market, the average quality of the listing does decline. In other words, he experienced a similar inflection point in the previous cycle. “At the same point in the cycle, the quality is obviously higher.â€
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