The enthusiasm in biotech discoveries, buoyed by the sector’s role in fighting COVID-19, has been a boom for biotech initial public offerings—a trend that began last year and remains strong into 2021.

“We continue to see very high-quality companies with novel technologies approaching the public markets through both IPOs and in some cases SPACs,” says John Sonnier, a managing director with William Blair Investment Banking.

John Sonnier
John Sonnier, a managing director with William Blair Investment Banking

The amazing technology these young biotechs are developing—from next-gen vaccines and cures for heart disease to innovative approaches to fighting cancer—have caught the eyes of investors. As of the end of August, there have been 71 biotech IPOs in the United States raising some $12.7 billion, compared with 77 initial public offerings in all of 2020 that raised over $17 billion.

More than half of this year’s biotech class are working on novel cancer treatments, extending a multi-year trend, says Sonnier. Similarly, companies focused on gene-editing and gene/cell therapies are seeing an uptick in IPO activity and continue to command higher pre-money equity valuations as compared to other modalities.

Two of the top-performing biotech IPOs in 2021 have been Icosavax, a next-gen vaccine developer, and Verve, a genetic medicines company developing therapies for cardiovascular disease. After Icosavax’s public offering in July, shares gained 160% as of mid-September. Verve’s shares were up 259% since its June IPO, delivering a market valuation of over $3 billion.

William Blair was an active bookrunner on both IPOs.

Demand for Early Stage Companies

Continuing a multi-year trend dating back to 2018, early stage companies (preclinical through Phase I/II) comprise a growing proportion of the current IPO class, accounting for over 60% of biotech IPOs in 2021. A substantial shift in investor appetite for taking on clinical risk is further supported by the growth in preclinical issuers in particular.

“Clear signals of clinical efficacy are no longer a prerequisite to drive investor demand at the IPO,” says Sonnier. “You get proof of concept early or investors are willing to take on risks earlier because preclinical data is more convincing.  

“Verve is a great example. It is a very early-stage company but is doing fascinating work, leveraging base-editing technology to develop potential one-time treatments that target genes that are well-known drivers of cardiovascular disease.”

While advances in technology have been the primary driver of elevated activity, the financing ecosystem also remains robust across multiple channels, including venture capital, public markets, and the growing number of public funds investing in late-stage private financing rounds.

Our healthcare bookrun transactions continue to outperform the market, both on pricing and aftermarket metrics...

RAKHEE BHAGAT, William Blair managing director, Equity Capital Markets

A surge in VC funding in biotech companies over the last four to five years has jumpstarted the growth of new company formation, Sonnier says. The next logical step for many of these is an IPO.

“We’re seeing the funding cycle repeat itself, particularly in the VC space,” he adds. “Since the start of 2020 we have seen a number of funds raise very sizable rounds in excess of $500 million, many times with the capital earmarked for investment in healthcare and more specifically the life sciences. This includes very notable funds from the likes of Andreessen (a16z), Apple Tree, Arch, Bain Capital, and Flagship each raising $1 billion-plus.”

Additionally, with the Russell 2000 becoming more heavily weighted towards biotech, the space continues to attract additional interest and capital from generalist investors who historically had very little exposure to biotech, Sonnier says.

COVID also has raised the awareness of biotech, a sector that has grown tremendously over the last 10 years.

“There’s just a broader awareness that amazing things are happening in biotech and that this industry matters to health security,” says Sonnier.

Note: Biotech stats noted in this article were compiled from industry databases and William Blair analysis.