Biotech Has Had An IPO Boom. Now It's Time For A Shakeout 

Following a boom in IPOs, recent years saw a biotech shake-out as public drug developers expanded their ranks.

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 Due to a scramble for capital among the expanded pool of companies and the importance of clinical trials, there was a reduction in public biotech firms last year, some of which were acquired by larger rivals and others were shut down. A divergence in fortunes is becoming more evident as the sector stabilizes after last year's slump. 

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Since the pandemic, drug developers have faced a market that is looking for meaningful data in order to earn their rewards. However, idiosyncratic outcomes are no longer the norm in biotech investing.

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 There is a segmentation in the biotech industry, said Debra Netschert, a health sciences portfolio manager at Jennison Associates. It is a "parting of the seas." 

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A team led by Wedbush Securities analysts led by Laura Chico reports that there will be a decline in the number of publicly traded biotech companies in 2022 after years of expansion. In their data, companies with a market capitalization of at least $50 million are included, with most exits resulting from falling below that level. Other exits resulted from bankruptcy, M&As, or other means. 

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On the basis of 450 companies tracked by Mara Goldstein at Mizuho Securities, she also found contraction.

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The winners and losers 

Recently, Structure Therapeutics raised $161 million through an upsized offering, encouraging signs of life in the sector. 

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The upsized IPO of Mineralys Therapeutics resulted in Mineralys Therapeutics' stock gaining in its trading debut on Friday. 

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In Matthew Jenkin's view, Newton Investment Management's companies become more valuable when we identify the winners, raise cash and survive another day, and discourage the losers. 

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Investing appears cautiously optimistic about an industry recovery in 2023. However, the expectations aren't for all boats to rise at once. 

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A high valuation can be attributed to mass buying and not knowing what one owns, which was common during the 2020 boom, according to Jennison's Netschert. 

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In essence, she said, "what we have here are companies who are rewarded in both stock price reaction and financing ability to move on to the next step when they demonstrate that the drug or platform they are developing is meeting their objectives."