The 2020-2021 biotech "bubble" pushed very early-stage companies into public markets prematurely. The subsequent correction, though painful, has been a healthy reset. It has forced the sector back toward a more suitable, long-duration private funding model where companies can mature before facing public market pressures.

Investors bet against new drug launches because the shift from a research-focused culture to a commercial one is seen as an 'unnatural transition.' Companies are graded harshly on early results, creating a predictable valuation dip that hedge funds exploit, as seen with Portola Pharmaceuticals.

When the IPO window opens, nearly every stakeholder—from bankers and lawyers to VCs and management—is financially motivated to go public. This collective "irrational exuberance" can lead to a rush of mixed-quality companies, perpetuating the industry's historical boom-bust IPO cycles.

Biotech leaders often fixate on share price after an IPO, but trading volume is the more important metric for long-term health. High liquidity attracts institutional investors and makes it easier to raise future capital. A stock that "trades by appointment" due to low volume signals a lack of interest and severely limits a company's financial options.

Unlike the 2020-2022 bubble, the expected wave of biotech IPOs features mid-to-late-stage companies with de-risked assets. The market's recent discipline, forced by a tough funding environment, has created a backlog of high-quality private companies that are better prepared for public markets than their predecessors.

In the current market, companies prioritize liquidity and public market access over protecting previous private valuations. A lower IPO price is no longer seen as a failure but as a necessary market correction to move forward and ensure survival.

Astute biotech leaders leverage the tension between public financing and strategic pharma partnerships. When public markets are down, pursue pharma deals as a better source of capital. Conversely, use the threat of a public offering to negotiate more favorable terms in pharma deals, treating them as interchangeable capital sources.

Despite significant stock price increases (e.g., 3-4x for some names), the current biotech rally is not a sign of an overheated market. Many small-cap companies are still trading at a fraction of their potential value based on their pipelines, suggesting the rally is a recovery from deeply distressed, sub-cash valuations.

Unlike in tech where an IPO is often a liquidity event for early investors, a biotech IPO is an "entrance." It functions as a financing round to bring in public market capital needed for expensive late-stage trials. The true exit for investors is typically a future acquisition.