Investor interest in newly issued biotech stocks has been lackluster for years. However, the first IPO of 2024 in the sector suggests a potential shift in sentiment.
Positive Market Response
On Thursday, CG Oncology, a company focused on cancer research, experienced a surprisingly positive market welcome during its initial public offering. The stock surged 96% on its first day of public trading, which Oppenheimer’s Leland Gershell deemed as a “resoundingly successful” debut.
This significant increase in value right out of the gate indicates that investor enthusiasm for biotech stocks remains high and bodes well for the sector in the coming year.
Room for Growth
Despite a recent rise of over 30% since November, the SPDR S&P Biotech ETF, which tracks smaller and midsize biotech stocks, is still down nearly 50% from its peak in early 2021. This decline is due to a wave of acquisitions in late 2023 and hopes for a more favorable interest-rate environment.
While the ETF experienced gains in early January thanks to deal announcements at the annual J.P. Morgan healthcare investment conference, it has dipped in the weeks following.
Weak IPO Market
Although there has been a return of enthusiasm for small- and mid-cap biotech stocks, the IPO market has remained weak. In 2021, there were numerous strong IPO debuts, with around 100 biotech IPOs flooding the market. However, in 2022, due to poor performance among newly-minted biotechs and rising interest rates, investor enthusiasm declined significantly.
This lackluster IPO market poses challenges for the biotech pipeline. Fledgling companies rely on IPOs to raise capital for their research and development efforts. Without funds, it may take years for these companies to develop treatments and gain regulatory approval, delaying their potential revenue. Furthermore, big pharma companies require mature biotechs for acquisitions to keep their pipelines active and thriving.
Biotech IPOs: A Recap and Future Prospects
In the years 2022 and 2023, the biotech industry witnessed an influx of IPOs, with around 20 companies going public each year. While some of the 2023 class companies have made impressive strides, others have faced challenges in the market.
RayzeBio, a prominent player in the class of 2023, focuses on the development of cancer drugs. The company went public at $18 per share in September and has experienced remarkable growth since then. Currently, its shares are trading at $62.08, indicating a substantial increase in value.
Another noteworthy addition to the biotech landscape is Apogee Therapeutics. This company made its debut in July at $17 per share and is now trading at $36.53, displaying promising potential for growth.
Structure Therapeutics, perhaps the most renowned member of the 2023 biotech IPO class, focuses on the development of a weight-loss pill. Despite facing a setback in December due to disappointing data, the company’s American depositary receipts debuted at $15 in February 2023 and currently trade at $42.15.
However, not all biotech IPOs from the class of 2023 have thrived. Acelyrin, which had the largest IPO of the year at $18 per share in May, is now trading at $7.30. Neumora Therapeutics, which went public at $17 per share in September, currently trades at $15.10.
Looking into the future, the first biotech IPO of 2024 comes from CG Oncology. This company specializes in developing a bladder cancer treatment that targets cancer cells and stimulates the immune system for an effective attack on tumors.
During its IPO on Thursday, CG Oncology issued 20 million shares of common stock at a price of $19 per share, exceeding the previously announced price range of $16 to $18. By the end of Thursday’s trading, the shares had soared to $37.17, marking an impressive 95.6% increase. Although there was a slight dip to $34.60 during Friday morning trading, the company’s prospects remain promising.
CG Oncology plans to raise $380 million through the public offering, but projections suggest it could reach as high as $437 million, considering the additional shares the underwriters have the option to sell over the next month.
As the biotech industry continues to evolve, these IPOs provide a glimpse of the dynamic nature of the market. Investors and industry enthusiasts alike eagerly await the developments and potential successes of these innovative companies.