After two tumultuous years marred by geopolitical tensions and recession, the biotech sector's initial public offerings (IPOs) are showing signs of recovery. In an interview with BioSpectrum Asia, Adam Farlow, Global Chair of the Capital Markets Practice Group, and Sheng Chen, senior capital markets and US securities lawyer based in Hong Kong, shared their views on what the future holds for biotech IPOs. 

Adam noted that “the hope for a sustained rebound in biotech IPOs is underpinned by several factors, including a rise in early-stage private capital funding and general optimism within the sector." In addition, "subdued markets over the past two years have contributed to a backlog of biotech companies waiting to go public and so we expect the healthcare sector to see strong interest if macroeconomic conditions continue to ease despite ongoing geopolitical headwinds.  

Sheng added that "while there are signs of improving market sentiment and we expect windows of opportunity for IPOs to emerge, we do not anticipate a full risk-on approach with a green light for all companies." He explained that the increase in the availability of private credit has thrown a lifeline to companies seeking an alternative source of funding. As a result, "the public markets remain selective at this point in the cycle with early-stage biotech companies likely to face the steepest path to market, and may need to rely on private capital to fund further growth." 

Adam further elaborated, "while venture capital investment, equity capital raising and M&A remain popular with biotech companies, licensing deals between biotech and pharma companies continue to increase, as the appetite for mutually beneficial risk-sharing and cost-sharing increases. Those companies aiming to test the IPO waters will most likely need a persuasive equity story and have entered the clinical trial stage."

It is also worth noting that AI may play a role in shaping IPO and biotech activity moving forward. “It has been impossible to ignore the clamor around AI over the past 12 months and the healthcare space has been no exception. Hopes that AI could drive the speedier development and delivery of new blockbuster drugs and breakthrough therapies could also create a tailwind for a wave of new companies to go public and perhaps provide an off-ramp for PE and other early-stage investors,” Adam said. 

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