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The Pharma IPO Rush

Written by PrivCo Research

The pace of private companies seeking to go public has slowed nearly to a halt. In April, private companies filed only two S-1s. Despite the decrease in these filings, the number of startups in the pharmaceutical and biotech industry has held steady, representing nearly 50% of all S-1s filed since March 12, when COVID-19 was declared a national pandemic.

Although that the absolute number of pharma and biotech companies remained stable (single-digit filings pre month), the steady stream of companies going public is a sign of resilience in the industry. The makeup of these types of pharma and biotech companies are turning stable as cancer research accounts for a majority of all companies.

S-1 Filing Counts

At PrivCo, we see two reasons that Pharma and Biotech companies are opting to go public. First, the sector has achieved oversized returns in the public markets since Covid-19. The large-cap S&P biotech sector ETF gained 21%, the best monthly gain since its inception in 2006. The S&P 500 health care index saw its best monthly gain in twenty years, on hopes for significant progress in the fight against Covid-19. Companies are capitalizing on the overall heightened industry multiples to boost their fundraising.

Percentage of biotech:pharma filing for S-1

Second, the Covid-19 pandemic has reduced the political risk of drug price regulation from Washington, boosting pharma companies’ forward-looking cashflows. The Pharma & Biotech industry has a long R&D timeline and a skewed risk-reward profile. Therefore, the prospect of greater profits poses a significant risk reduction for the industry.

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