Biotech's Big Chill: Pharma & Med Device IPOs Plummet to Historic Lows

The last couple of years have delivered a jarring reality check to the pharmaceutical and medical device sectors. After a euphoric, record-setting 2021 that saw a flurry of public market debuts, the IPO taps have all but run dry, leaving a landscape starkly different from the recent boom. Data reveals a dramatic and sustained downturn, pushing IPO activity to multi-year lows and signaling a challenging environment for companies looking to go public.

The stark contrast is undeniable.

2021 stood as a beacon year, with 54 pharmaceutical and medical device companies successfully launching IPOs, collectively raising an astounding $11.6 billion. This period was characterized by investor enthusiasm and robust market conditions, fueling innovation and growth across the health and wellness biotech space.

However, the tide turned sharply in 2022.

The exuberance gave way to caution, and the numbers plummeted. Only 12 companies managed to complete an IPO in this period, raising a comparatively modest $1.7 billion. This represented an alarming 78% drop in the amount raised year-over-year, effectively pulling the rug out from under many aspiring public entities.

The decline wasn't just a slight dip; it was a precipitous fall.

The challenges have only deepened in 2023. By early August, a mere 5 pharmaceutical and medical device companies had successfully navigated the IPO process, scraping together a paltry $458 million. To put this into perspective, even pre-pandemic years like 2019 and 2018, which were not considered boom times, saw 27 and 22 IPOs respectively.

The current numbers illustrate a market more restrictive than any seen in over half a decade, highlighting a significant shift in investor appetite and market conditions.

While the IPO market for health and wellness biotech has faced a severe correction, venture funding for biotech and pharma has shown slightly more resilience, though still trending downwards.

Crunchbase data indicates that venture funding for the sector reached $53 billion in 2021. This figure decreased to $37.5 billion in 2022, and by mid-2023, it stood at $18.5 billion. Though a notable decline, the drop is not as steep or as sudden as that experienced in the public market arena, suggesting private investment continues, albeit at a moderated pace.

This sector-specific downturn is, in part, a reflection of a broader, global IPO slowdown affecting nearly all industries.

Rising interest rates, persistent inflation, and geopolitical uncertainties have created a risk-averse environment. Public market investors are now demanding greater profitability and more mature business models, making it harder for early-stage and growth companies to justify their valuations and attract capital.

According to analyses from firms like PwC and Deloitte, the market dynamics have shifted considerably.

There's a growing preference for mergers and acquisitions (M&A) over IPOs as a liquidity event or growth strategy. This trend suggests that established companies are finding value in acquiring innovative startups rather than developing new solutions internally, or that startups are finding M&A a more viable exit strategy in a challenging public market.

The ongoing market volatility means that companies need to be exceptionally well-capitalized, have clear paths to profitability, and possess robust pipelines to even consider an IPO. The current climate is unforgiving, demanding a level of market readiness that few can achieve, further contributing to the chilling effect on IPO activity in the pharmaceutical and medical device industries.