The acquisition of Amicus Therapeutics illustrates a harsh biotech reality: a company can grow its market cap 15-fold over 16 years, but IPO investors can still lose money. The immense, sustained dilution required for drug development erodes early shareholder value, even in a long-term "success" story.
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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.
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.
While staying private can offer strategic advantages, particularly for future M&A, the biotech industry lacks a mature private growth capital market. Companies needing hundreds of millions for late-stage trials have no choice but to go public, unlike their tech counterparts.
Contrary to the popular VC idea that IPO pops are 'free money' left on the table, they actually serve as a crucial risk premium for public market investors. Down-rounds like Navan's prove that buyers need the upside from successful IPOs to compensate for the very real risk of losing money on others.
In a capital-constrained market, positive clinical data can trigger a stock drop for biotechs with insufficient cash. The scientific success highlights an immediate need for a highly dilutive capital raise, which investors price in instantly. Having over two years of cash is now critical to realizing value.
A massive disconnect exists where scientific breakthroughs are accelerating, yet the biotech market is in a downturn, with many companies trading below cash. This paradox highlights structural and economic failures within the industry, rather than a lack of scientific progress. The core question is why the business is collapsing while the technology is exploding.
To generate returns on a $10B acquisition, a PE firm needs a $25B exit, which often means an IPO. They must underwrite this IPO at a discount to public comps, despite having paid a 30% premium to acquire the company, creating a significant initial value gap to overcome from day one.
The path for biotech entrepreneurs is a long slog requiring immense conviction. Success ("liftoff") isn't just a clinical trial result, but achieving self-sustaining profitability and growth. This high bar means founders may need to persevere through years of market indifference and financing challenges.
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.
The past few years in biotech mirrored the tech dot-com bust, driven by fading post-COVID exuberance, interest rate hikes, and slower-than-hoped commercialization of new modalities like gene editing. This was caused by a confluence of factors, creating a tough environment for companies that raised capital during the peak.
