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IPO

Biotech IPO surge sparks hope for tech offerings

The IPO calendar for biotech listings has filled up. Will tech companies follow suit?

A month into 2024, the tech IPO calendar remains blank. But after two years of quiet, biotech IPOs are suddenly making noise.

Last week, bladder cancer drug developer CG Oncology priced its IPO above the expected range and raised $380 million. Its shares then jumped 96% on the first day of trading. That offering was followed by Arrivent Biopharma, which raised $175 million and has traded up in price since its IPO.

Alto Neuroscience and Fractyl Health, two other biotech companies, are also planning imminent public debuts.

This sudden swell of biopharma offerings could help pave the way for technology companies waiting in the wings.

“We’ve found that the biotech space is usually a leading indicator, both for the opening and closing of an IPO market,” said West Riggs, head of equity capital markets at Truist Securities. Riggs added that some “high-quality” tech companies are considering listing in February or March.

During the IPO boom that peaked in 2021, pharmaceutical and biotech IPOs rose and fell before tech IPOs followed suit, PitchBook data shows. However, observers pointed out that the market was particularly optimistic about healthcare during the last wave because many investors believed that new drugs would help put a stop to the COVID-19 pandemic.

Historically, the volume of biotech IPOs has been tightly correlated with tech listings.

But other observers of IPO markets don’t believe that biotech is a bellwether for other IPOs.

Biotech companies often launch offerings when overall market conditions are not favorable for tech IPOs, said Jeff Grabow, US venture capital leader at EY.

Unlike tech startups, biotech companies generally raise a limited amount of capital from private investors. Funding for later phases of drug trials is often financed with IPO proceeds.

“For a biotech company, an IPO is a financing, not a liquidity event,” Grabow said. “So they tend to go [public] no matter what.”

Mark Schwartz, EY’s IPO and SPAC advisory lead, said that tech companies tend to consider broader market conditions before launching an IPO. For biotech companies, the decision to go public is more driven by company-specific situations, such as a need to finance a trial with potentially strong scientific results.

Amanda Rose, who co-leads the life sciences and tech capital markets practice at law firm Fenwick, also said that she has doubts that the biotech IPO wave is a harbinger of more tech IPO offerings.

“We’re feeling the energy in biotech [IPOs] now. Tech is not quite there yet,” she said.

Over the last two years, biotech companies were hit by unfavorable macroeconomic conditions, as were tech companies, according to Rose. By now, some biotech companies may not have sufficient capital to finance new phases of drug trials.

Unlike these drug developers, most tech startups are unlikely to take on large research and development projects at this time. Moreover, the strongest tech startups could still have capital in the bank or are approaching profitability, according to investors.

Whether tech has a robust IPO year depends mostly on the success of other tech IPOs.

“I think there’ll be at least a couple of big names that go out and test the market this year,” Rose said. “If they do well, that’s more of a bellwether for opening for tech [IPO window] than the biotech sector.”

Featured image by Tanja Ivanova/Getty Images

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