A recent WSJ article highlighted the trend that biotech startups are preferring to be acquired rather than go IPO. According to research from Bain & Company, as many as six-times the number of biotech startups have chosen to be acquired compared to only 67 biotech companies which went IPO since 2003.
The market conditions are definitely making it tougher for biotech startups to go IPO. According to Bain, acquirers are willing to pay a premium, an average of 3.5 times a startup’s invested capital compared to the stock market which valued biotech companies at about twice their pre-IPO levels. Institutional investors are wary of biotech IPOs since new offerings have not performed well – in the past year, shares of most biotech IPOs have depreciated since entering the market. Venture capitalists also prefer acquisitions over IPOs because of the benefits of being preferred shareholders.
But as more biotech startups move away from IPOs, the WSJ article asks whether small biotech companies will be able to mature to become independent companies. Even so, there are biotech companies on the market with the potential to become the next Amgen or Genentech.