Evercore Analyzed 16 Years Of Biotech IPO Data

Biotech IPOs have long been alluring for investors because of how difficult it is to resist buying into the opportunity for a major biotech breakthrough. Shareholders of the company that finally cures cancer will likely all be instant millionaires, so why not take a stake in the next hot biotech IPO?

Evercore Partners analysts Pankaj Patel and Abhra Banerji recently took a look back at biotech IPOs in recent years and compiled a wealth of statistics dating all the way back to 2000. Here’s a summary of what they found.

First Day Of Trading

Unfortunately for many biotech IPO buyers looking for a quick flip, Evercore’s data shows that first-day profits have been hard to come by.

In only three of the past 16 years have more than half of the biotech IPOs finished their first day of public trading above their issue price. The only year in the past eleven years biotech IPOs saw more day-one gains than losses was 2013.

First Six Months

The numbers get even worse when Evercore extends the time horizon to six months.

According to the data, there’s only been two years in the past 16 in which more than half of the biotech IPOs were trading higher that their issue price six months later. To make matters worse, there has not been a single year in which 60 percent or more were trading higher after six months. However, there have been no less than four years in which not a single biotech IPO returned positive gains over the first six months of trading.

Overall Returns

Finally, Evercore looked at the overall returns generated by biotech IPOs during their first six months of trading.

The chart shows that biotech IPOs tended to be mostly poor investments for a six-month time horizon from 2001 to 2009. However, since 2009, biotech IPOs have done relatively well, returning between 5 and 23 percent during their first six months of trading.

Takeaway

The numbers seem to indicate that a small number of biotech IPOs are generating a large amount of the positive returns in the space, at least within the first six months. Investors should be aware that, while there are certainly plenty of big winners, there are more than enough big losers to make investing in biotech IPOs an overall risky endeavor.

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