The biotech IPO market continues its prolonged downturn, with industry experts now predicting that drug developers won't return to US equity markets in full force until 2026 as the sector grapples with regulatory uncertainty and disappointing investor returns.
Dramatic Decline in Public Offerings
Only five biotech companies raising more than $50 million have gone public so far this year, following last year's already stunted number of 18 initial public offerings. This represents a stark contrast to the pandemic frenzy when roughly 150 companies from the sector went public over a two-year stretch starting in 2020.
"The IPO and follow-on equity market is not closed completely for biotech and biopharma, but unfortunately for now, it's more of a trickle than a flood," said Moelis & Co.'s Ashish Contractor, who advises biotech clients.
The last notable biotech IPO was the $98 million debut of obesity-drug focused Aardvark Therapeutics Inc. in mid-February. The San Diego-based company's stock performance exemplifies the sector's struggles, trading down over a third from its $16 debut price.
Regulatory and Political Headwinds
The Trump administration's policy changes have created significant uncertainty for the industry. Jeff Quillen, co-chair of the life sciences industry group at Foley Hoag, highlighted the massive cuts at the Department of Health and Human Services, with the FDA, CDC and NIH collectively losing about 25% of their workforce.
Greg Benning, head of investment banking at Back Bay Life Science Advisors, described these budget cuts combined with reductions across research universities as "brutal." He predicted that uncertainty from Trump's policy moves will continue through this year and perhaps into 2026.
The administration's plans to cut the Food and Drug Administration's budget and staff, along with Health and Human Services Secretary Robert F. Kennedy Jr.'s skeptical attitude toward vaccines and obesity drugs, have weighed heavily on industry share prices. Additional uncertainty regarding the administration's Most Favored Nation pricing initiatives has created further obstacles in the biopharma market.
Poor Investment Performance
Market performance data reveals the depth of investor disappointment. All but four of the biotech companies that have raised more than $50 million in IPOs since the start of last year are trading below their listing prices. The Nasdaq Biotechnology Index is down 4% so far this year, trailing the S&P 500 Index's 0.7% decline over the same period.
The biotech index has only produced a positive return in one of the past five years and hasn't produced a double-digit return in any of them. Biotechs that went public in 2020 and 2021 are showing an average share loss of more than 40%.
Jason Fenton, Cantor Fitzgerald's co-head of equity capital markets, attributed some of the poor performance to the fact that too many biotechs that went public during the pandemic years lacked maturity or a strong investment thesis.
Changing Investment Landscape
The current environment has fundamentally altered how biotechs approach fundraising and how investors evaluate opportunities. "There's really not much interest or bandwidth to look at brand new companies," Quillen noted, describing the current period as one of "triaging" companies within existing investment portfolios.
Mergers and acquisitions have shrunk 25% from last year, according to Quillen, "and last year was pretty anemic, so that's disappointing." While discussions continue, parties are having difficulty agreeing on prices.
Seth Rubin, Stifel Financial Corp.'s head of global ECM, explained that investor expectations have evolved significantly. "Investors have a much more discerning view, not just of what does the data tell us today, but what's the development pathway from here," he said.
In the past, biotechs almost reflexively raised capital when they released new clinical data. Now they need to demonstrate a clear route to continued value creation and potential commercial success. As a result, investors are focusing on later-stage companies where they can get clarity on the business model.
Adaptation Strategies
The challenging environment has forced biotechs to develop new approaches to funding. "Fundraising at the moment is a full-time job for all the CEOs," according to Dirk Kersten, partner at venture capital firm Forbion.
Companies are being forced to develop more detailed, targeted funding plans to extend their cash runways until IPOs re-emerge as a viable option. Close relationships between biotechs and select investors have become increasingly important as developments in the US shake confidence in the industry.
Trump's tariffs have also influenced strategic decisions. Kersten noted that many companies are now seeking greater US presence as tariffs deter imports, citing Swiss-based Roche's plans to invest $50 billion in its US operations. However, Max Klement, partner at investment company Novo Holdings, pointed out that developers still look to China for high-quality outsourcing and cheaply acquired clinical assets.
Long-term Outlook
Despite current challenges, industry experts maintain cautious optimism for the sector's eventual recovery. Fenton noted that more money than ever is dedicated to the sector and scientific advances continue to progress. Big pharma companies, facing a patent cliff and needing to replace tens of billions of dollars of revenue from drugs coming off patents by the end of the decade, would likely fund or acquire companies with strong clinical data.
"At some point, likely in 2026, we are going to have a normal biotech IPO market," said Fenton, noting that there were about 30 to 40 biotech IPOs per year on average from 2017 to 2019, which represents more normal market conditions.
Alastair Kilgour, founder of investment management firm Parkwalk Advisors, believes developments at the FDA can be expected to resolve in six to nine months, after which the biotech IPO market could reopen, incentivized by the looming pharma patent cliff.
