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IPOs of Small Private Biotech Companies Prepare for Return in 2023

Later in 2023, companies should be ready for a comeback thanks to a slowdown in interest rate hikes. However, investors will favor more companies with drugs in human trials.

Last year, IPOs in all sectors noticed a decline after a record year in 2021. Aggressive interest rate hikes to curb inflation ended the era of cheap money.

In the biotech sector were 152 IPOs in 2021, raising more than $25 billion, compared to only 47 IPOs last year, which raised a total of about $4 billion.

According to Reuters, more biotech companies are expected to enter the US IPO market this year. The Federal Reserve is reducing the scope for rate hikes and private investment rounds are not raising enough capital to fund clinical trials. Given tighter financial conditions, it may be problematic for companies that went public in 2021 and have not yet reached the clinical trials to attract equity investors.

Several biotech companies (e.g. Sana Biotechnology, Tenaya Therapeutics and Virpax Pharmaceuticals) that are in the preclinical stage and went public during 2021, are forced to trade below their IPO price.

Reduced investor interest in the biotech sector was also caused by a lack of large acquisitions and a large amount of disappointing clinical data. A number of biotechnology companies that have no approved products on the market were forced to drop some drug trial programs and implement layoffs to cut costs.

Optimistic Outlook for Biotech Companies

At the end of last year, the sector began to recover. According to analysts, the outlook for the rest of the year is more optimistic thanks to multi-billion dollar acquisitions and innovations such as genome editing and the development of cancer drugs. The development of drugs for Alzheimer’s disease, gene and cell therapies, and breakthrough mRNA technology are also attracting more investor interest. There is also a greater chance of a significant increase in IPOs in the second half of 2023 as further clarity on interest rate cuts is awaited.

Several biotech companies have already filed for IPOs this year. Mineralys Therapeutics and Structure Therapeutics, whose products are in the clinical development phase, have already successfully debuted on the market.