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Biotech IPO Boom or Bubble? The Opening Plenary at the BIO Investor Forum

October 9, 2013
With 31 (and counting) life sciences companies having already placed IPOs on the market within the first 8 months of this year and many others lining up for S-1 filings, biotech is buzzing about a revival of the IPO market.

Is it a bubble?

David Thomas, director of Industry Research and Analysis at BIO took up these questions during the opening plenary lunch of the 12th Annual BIO Investor Forum.

What’s his short answer? Not yet.

Want the long answer?

Well, fueling the bubble discussion is the fact the NASDAQ Biotech Index raced past its previous all-time peak earlier this year.

Biotech Index

However, makeup of the companies fueling the rapid growth is much different than the bubble the industry experienced 13 years ago, according to Thomas.

“The large companies that make up the bulk of the index have been coming out with some incredible phase III data, FDA approvals and successful market expansions,” Thomas said.  “This is in contrast to where we were 13 years ago. If it was a bubble, we’d have a lot of the risky assets (the smallest companies) actually outperforming the large companies. We don’t see that.”

Smaller Returns

Thomas also pointed to the recent numbers of IPOs as evidence that we’re in a boom as opposed to a bubble. “We’ve had a lack of quality IPOs for some time and we’re just getting back to where we should be,” Thomas explained.

IPO Bubble

Taking a deeper dive in to the numbers, Thomas said: “When you look at the companies that have gone public that are preclinical/phase I, we didn’t have any for 4 years. We had 2 last year and we’ve had five this year – so, it’s coming back.”

This is an indicator that public investors are finally willing to take on the development risk that has been avoided for the last five years.

Another interesting fact regarding the recent surge in IPOs is the fact that all the biotech IPOs that have filed since the signing of the JOBS Act in 2012 used the new pathway provided by the legislation.

Learn more about the act's impact on biotech offerings and how emerging companies can leverage the new law to their best advantage in our JOBS Act Deconstructed series.