Biotech IPO prices have risen, but have not fully recovered

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Good morning! After a two-year drought, initial public offerings (IPOs) for biotech companies showed signs of life during the first three months of 2024.

But it is too early to say that the biotech IPO market has fully recovered.

Biotech IPOs appear to have reached pre-pandemic levels during the first quarter, with nine companies collectively raising more than $1.3 billion, according to the BioPharma Dive database. That's more than triple the roughly $375 million raised from biotech IPOs in the first quarter of 2023.

Here are the companies that went public in the first quarter of 2024, according to the BioPharma Dive database:

Oncology CG – 1/24, raised $380 millionArrivent Biopharma – 1/25, raised $175 million Alto Neuroscience – 2/1 raised $129 million Fractal health – 1/2 Raised $110 million Keverna treatments – 2/7, raised $319 million Telomere Pharmaceuticals – 2/8, raised $7 millionMetagenomics – 2/8, raised $94 million Chromosyl treatments – February 15, raised $7 million CV without limits – March 27, raised $100 million

Another company, Contineum Therapeutics, went public on April 4 and raised $110 million.

Six of the nine IPOs that priced between January and March raised $100 million or more. Kyverna Therapeutics and CG Oncology raised $319 million and $380 million, respectively. The latter is now trading well above its IPO price.

But the last few biotech companies to price their IPOs this quarter “didn't trade well,” Mike Perrone, a biotech specialist at Baird, told CNBC.

For example, gene-editing drug company Metagenomics priced at the bottom of its expected price range in February and has since lost more than half its value. This raises doubts about the prospects for the biotech IPO market the rest of the year.

“We kind of started the first quarter with a roar and ended with a whimper,” Perrone said.

These problems partly reflect the Federal Reserve's decision to wait longer than previously expected to cut interest rates after a series of surprisingly high inflation readings, he said.

“Much of the early enthusiasm for biotech IPOs this year was on the back of expectations of previous interest rate cuts, and risky assets like biotech with long-term cash flows bode well during lower interest rate environments,” Perrone said. “But as inflation has held steady and as the Fed continues to postpone interest rate cuts until later this year, I think some of that enthusiasm has subsided.”

So, what will biotech IPO activity look like for the rest of the year?

A typical “strong year” looks like about 50 IPOs based on the past 10 years, according to Arda Ural, EY Americas industry markets leader in health sciences and wellness. The biotech sector is not on track to meet this number, with only 10 IPOs through 2024.

“Things will probably still be lower than a normal year,” Ural said. He noted that this may change.

If the Fed starts cutting interest rates as early as its late July meeting, “you're looking at a different second half of the year for IPOs…that would certainly send us in a very positive direction,” Ural said.

He described it as “overdue cautious optimism.”

By comparison, biotech IPOs had a historic year in 2021, as the massive success of Covid vaccines and treatments during the pandemic renewed investor optimism. Nearly 110 biotech companies priced IPOs and collectively raised about $15 billion that year.

But that momentum began to slow in 2022 and is moving at a snail's pace in 2023: the biotech sector saw only 22 and 19 IPOs during those years, respectively.

Higher interest rates by the Federal Reserve were a big driver of deflation, according to Peroni. He said the poor performance of new publicly traded companies also contributed, particularly due to the high number of clinical trial failures.

Notably, most drugmakers that priced proposals between 2020 and 2022 were in pre-clinical or early clinical testing, which Perrone described as “unnatural.”

“I would say the downturn was a combination of interest rates starting to rise and all of these startups having higher than average failure rates,” Perrone told CNBC. “That kind of jitters the market.”

The good news this year is that the vast majority of biotech companies that have priced IPOs so far have tested their products in humans to some extent, reflecting investors' shift toward safer bets. Perrone described this as a “healthier situation” and a more “natural environment.”

The bottom line, Perrone said, is that we'll have to continue to “monitor prices” to see what the pace of biotech IPO activity looks like moving forward. Stay tuned to our coverage in this area.

Feel free to send any tips, suggestions, story ideas and data to Annika at annikakim.constantino@nbcuni.com.

Last week, I spent an afternoon at Weill Cornell Medical College in New York City exploring transformation with Dr. Rohan Jotwani and Dr. John Rubin.

Jotwani and Robin are anesthesiologists at the medical center and also serve as co-directors of the Extended Reality Anesthesia Laboratory, or XRAIL.

Anesthesiologists are doctors who specialize in pain management, critical care medicine, and of course anesthesia, the use of medications that help keep patients comfortable during procedures. It is a critical specialty that requires doctors to use technical and emotional skills, as working closely with patients in pain can be difficult.

XRAIL was established last year to help anesthesiologists and anesthesiologists-in-training hone their abilities. Jotwani and Rubin believe technology such as virtual reality and artificial intelligence can improve medical education and clinical practice in the specialty.

For example, the duo designed a series of lessons to help doctors learn and practice procedures by working with 3D models in virtual reality headsets. I observed one such lesson between Jotwani and Dr. Chrissy Scherenfant, chief resident in anesthesiology at Weill Cornell.

Before class, we all met in one of the medical center rooms to get to know each other and our headphones. The lab primarily uses headsets from the Meta (which we put in Meta Quest 2), but is also exploring use cases for Apple's new headset, the Vision Pro. Cherenfant and I had never used a VR headset before, and I felt like we got the hang of it pretty quickly.

Even though we were all together in the same place, the headsets could be used remotely, meaning doctors could meet in virtual reality even if they were in different places. XRAIL has a range of headphones it can provide to residents, and Jotwani said a class with about six to eight people is usually the sweet spot.

The experience was immersive once I put on the headset. Once we all joined the session, I was able to see the avatars of Jotwani and Chernvant, as well as a 3D model of the spine in the middle of the room. Shernvant and I watched Jotwani as he zoomed in and out of the model, picking out individual bones and muscles, turning them at different angles and sucking in air.

I thought the model was a useful way to break down complex concepts and get into the finer details of anatomy, something that would be difficult to do using only 2D images in a textbook. It was easy to see how headphones could serve as a useful learning tool.

“I wish I had this when I was an apprentice,” Cherenfant said during the lesson.

Technology is far from perfect. Sometimes, the avatars would get in the model's way, obstructing my view. If you could see something from where you were sitting, the Cherenfant often couldn't, so getting the position exactly right was difficult. Sometimes, the model might suddenly look gigantic, the environment look pixelated or fuzzy, and we'd be thrown out of the session by accidentally stepping out of bounds. There are some issues to resolve.

Headphones also don't replace the feeling of a procedure, like putting a needle through the skin, for example. Holding a controller is not like using a medical instrument.

However, virtual reality is an easy and relatively inexpensive way for residents to practice surgery as many times as they want. Jotwani and Robin believe it's best to rely on photos, videos and trips to the cadaver lab, which can be few and far between.

While XRAIL uses virtual reality to help teach technical skills like how to perform procedures, it also uses artificial intelligence to teach soft skills like how to talk to and listen to patients. Jotwani and Rubin, who are not engineers, have built about 10 different AI-powered conversational tools that doctors can practice talking to in real time.

Weill Cornell typically does this by hiring actors to simulate some of the situations doctors might face, Jotwani said. It's a time-consuming and expensive process, as it can take up to eight hours to train actors and ensure their portrayal is realistic.

Jotwani added that the actors also stick to the script, which means there is a lot they can do. In contrast, conversational agents can have more free-form discussions.

After Jotwani turned on his computer, I “met” an agent named CARL, short for Conversational Agent Assistance in Pain Management Learning. We talked about Carl's chronic pain, and he told me details about his history and life, even on the couch in his virtual apartment in New York City.

I was really impressed – and maybe a little nervous – by how natural the conversation flowed. Carl is just a computer model, but he seems to have personality, and I thought he was able to convey emotions like frustration and annoyance convincingly.

There's a bit of a lag in CARL's responses, maybe one to two seconds, so the conversation isn't quite like talking to a real person. I was also instructed to make sure I spoke using complete sentences, so I was more conscious of my words than usual.

But again, it was clear to see how CARL can serve as a valuable way for doctors to practice patient management in a risk-free manner. Personally, I would rather have my doctor ask an AI agent the wrong questions than me.

“We're really interested in building more models like CARL, models that challenge our evaluators to think beyond just how to pass this test to how to engage with real people who have complex stories,” Jotwani said.

Jotwani and Robin are just starting out, and are already being asked to talk about their work regularly. Over the next two years, they plan to expand XRAIL's capabilities and offer the technology to other organizations.

“I think there's a lot of opportunity,” Rubin said.

Feel free to send any tips, suggestions, story ideas, and pitches to Ashley at ashley.capoot@nbcuni.com.