Biotech flotations plunge to a 10-year low

The sector must hope that the bottom has been reached.

Not since 2012 has the biotech sector seen such a dismal period for initial public offerings. With sentiment so terrible, perhaps it is surprising that as many as three groups managed to get away in the second quarter.

Two of these, Hillevax and Pepgen, even managed to upsize offerings, meaning that they sold more shares than expected. Valuation bumps are a thing of the past, however, and like the rest of biotech these new arrivals are struggling. Eight of this year’s 13 drug developer IPOs are already trading under water.

The third developer captured in this analysis, Belite Bio, raised only $36m, and its parent company, Lin Biosciences, heavily backed the deal, buying almost half of the new shares. This show of support seems to have worked, with the stock surging fivefold since floating in March, giving the group an almost $1bn valuation.

It is hard to know what has prompted the interest, which certainly bucks broader trends right now. The company is in getting a pivotal trial of its lead asset, tinlarebant for Stargardt disease, under way, though data are unlikely to emerge for several years.

The numbers here concern IPOs of pure-play drug developers only; secondary listings are not included.

Hillevax is 2022’s biggest IPO so far in terms of sums raised; perhaps investors considered the group a relatively safe bet. It is developing a vaccine that has the potential to become the first to market for norovirus. The project is licensed from Takeda, which had already completed a lot of clinical work, and should generate confirmatory efficacy data late next year.

Pepgen was the last developer to get away, almost eight weeks ago. It had to slice its valuation to do so and has already dipped below its IPO price. The company has one asset in phase 1 development, for Duchenne muscular dystrophy, a risky proposition for investors right now.

Second-quarter IPOs 
Company Primary focus Amount raised Premium/(discount); float price to initial offer Share price change since float to end Q2
Hillevax Norovirus vaccine  $200m 0% -36%
Pepgen Neuromuscular diseases $106m -14% -17%
Belite Bio Retinal degeneration  $36m 0% 419%
Source: Evaluate Pharma.

In Europe the situation feels even more dire, with only one developer, Aelis Farma, managing to float this year, on Euronext back in February.

IPO hopefuls will be nervously watching the next brave biotech to test these markets. There are at least nine that have filed documents with Nasdaq. Two joined the Nasdaq queue in June, Genelux and Shuttle Pharmaceuticals, the first biotechs to do so since April, so perhaps there are glimmers of hope. The closely followed biotech ETF the XBI has recovered slightly since hitting a six-year low in early June.

But this "recovery" is hanging on by its fingernails amid broader market malaise. The second quarter was the slowest for US flotations, across all sectors, since 2009, according to the IPO specialists Renaissance Capital. No wonder the high-risk biotech space is suffering.

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