After a major boom in initial public offerings (IPOs) in the biotech sector during 2013 and the first quarter of 2014, the trend seems to be slowing. Last year, more than 45 biotechnology firms entered the public market, generating over $3 billion. Although some feared that the biotech bubble would soon burst, 29 life sciences start-ups went public in 2014’s first quarter. Together, the companies collected just over $2 billion, which will fund continued research and development efforts by firms like Ultragenyx and Dipexium Pharmaceuticals. However, few industry experts expect the number of biotech IPOs to hold steady at such a high rate. In fact, some even argue that these high-performing stocks could ultimately de-incentivize the buyout activity of large pharmaceutical companies upon which small biotech firms rely.
Moving into the second quarter, biotech companies may want to carefully weigh the pros and cons of pursuing IPOs versus merger and acquisition opportunities. Boards must examine shareholders’ risk and return profiles, the deal’s time to liquidity, and rates of dilution. Biotech investment is often both risky and long-term, so it is ideal to ensure that shareholders are able to reap the benefits of their early risks.
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