Though last year was a rollercoaster for biotech IPOs, 2022 has comparatively leveled off as shares miss 2021’s signature spike. Here’s what investors need to know about this year’s cooler market and the lessons learned from 2021’s top earners.

2021 was a landmark year for biotech IPOs. Companies charted record-breaking launches and gains, with a whopping 160 healthcare companies going public and some soaring 200–500% above their opening price. Overall, 2021 was the busiest year for deals since 2000, and biotech commanded a major role, accounting for 36% of all IPO activity. A total of 111 biotechs went public, beating the previous IPO record of 91 in 2020.

The biotech sector’s high earnings were partially attributed to renewed interest in pharma innovation led by Moderna’s and Pfizer’s COVID-19 vaccines, as well as an overall upward trending market. Though launches were good to many of the biotechs that claimed a ticker, these gains were all but erased for the majority of top earners by the end of the year. While overenthusiasm caused IPO shares to spike, these prices leveled or fell within months or less — making 2021 a wild ride that ultimately ended in disappointment for investors hoping to play the long game. 

Perhaps Sana Biotechnology exemplifies the 2021 biotech IPO paradigm best. The company soared from its listing price of $25 to almost $40 and then steadily declined. It now rests under $6. Sana Biotechnology is interesting, because it was more than a year away from having a product even in phase I when it opened (and it still is), making it the highest IPO valuation for an organization still in the preclinical phase. It’s clear that entering the market with no data or results to solidify the high share price clearly hurt the company’s prospects, which are still just that. Despite being very early stage, Sana Biotechnology gained enough money through investors to continue its work engineering in vivo and ex vivo cell platforms. The company’s total net worth is currently 1.14 billion.

Of all the biotech IPOs to debut in 2021, 52 out of 78 were in preclinical or phase I. In 2020, this was only 47 — which was still more than double 2018’s and 2019’s numbers. 2021’s biotechs demonstrate that momentum will generate buzz, followed by an increase in valuation, but only for a short time. Although biotech companies almost predictably spiked shortly after opening, the majority of investors ultimately pulled out and haven’t looked back. Any setbacks in the clinic can have a major impact on share prices. The takeaway is that, even though hope can cause shares to peak, reality is bound to set in and be reflected in pricing.

Most were willing to hedge their bets on a potentially game-changing drug regardless of a lack of results while a stock was hot. Recursion Pharmaceuticals followed the same trajectory as Sana Biotechnology and claimed the second largest biotech IPO of 2021. Fueled by its AI drug discovery platform and deals with Takeda and Roche, the Utah-based company billed itself more as a tech company than a biotech. This attracted over $500 million in investment, enabling the company to take four drugs to phase II and propel six programs to almost reach the clinic. Recursion opened at $9.22, hit a 52-week high of $42.81, and is now valued at just over $7.

Despite a partnership with key industry players, including Sanofi, biotech Exscientia, which similarly designs drugs via AI technology, couldn’t match its own best either. It announced its upsized IPO at $304.7 million or $22 a share — trading halted on opening day. In just five months, the stock has experienced highs over $30 and is now at a year-to-date low of $11.50.

Another noteworthy IPO, Lyell Immunopharma, closed nearly $1 billion in financing over three years as a private company and added an impressive $425 million to that after going public. Again, this was all based on promise — the company did not file an IND until 2022. GSK owns 14% of Lyell, and together the companies are working on increasing the efficacy of T cell therapies against cancer. Lyell’s lead CAR candidate LYL797 is an intravenous (IV)-administered CAR-T cell product candidate targeting ROR1 that leverages the company’s Gen-R and Epi-R technology platforms. Although Lyell made good on its word and filed its LYL797 IND in Q1 2022, it wasn’t enough to bring the stock back to its original high. Lyell debuted at $6.38 and peaked at $19.84 before bottoming out at $4.91.

One stock that hovered around its opening price is Verve Therapeutics. Verve’s stock went public at $28.29, climbed to $78, and then leveled out to a price close to its original share offering. As of yet, there is little evidence to back Verve’s technology; however, the company plans to file a clinical trial application for leading candidate VERVE-101 and has promised to treat a patient by the end of 2022. Verve also expects to file new INDs this year. Aside from having a similar pipeline and results profile as the aforementioned biotechs, Verve’s platform might separate it from the pack. Potentially a more sophisticated CRISPR, VERVE-101 does not cut genes to edit them, and instead relies on base editing to change a base (or letter) in the DNA to ideally treat a condition. The company is focused on cardiovascular disease, though the platform could have many other applications if proven successful.

What does this undoubted IPO cliff mean for biotech and pharma shares going forward? While 2022 has already started off slower and is unlikely to match the whirlwind of last year, investors may benefit from stocks with decidedly less volatility.

Biotech investment matches the risk level of a company preparing to go to market, and it can’t be overstated that only 1 in 5,000 drugs advances beyond trials. Perhaps the leveling off of share prices will create a ripple effect in the industry, with big pharma re-evaluating what it is willing to spend on the shiniest new company. Instead of snatching up every early-stage biotech for $1 billion, largely driven by fears of potentially being left out, these companies might be acquired for a more modest $300 million, for example, in a comparatively austere environment. And maybe (just maybe) those costs saved will trickle down to patients and payers. Ideally, the 2021 biotech market will serve as a lesson for the industry and investors to look before leaping — and be sure there’s actually somewhere to land.

Rani Therapeutics has so far survived the classic 2021 biotech IPO path and remained steadily above its opening price (at least at the time of writing). Initially offered at $11, Rani experienced a 52-week high of $36.27 and a low of $9.24. It now trades around $16 and is up almost 5% all time. While not able to maintain its 230% gain, the company stands out by beating its IPO price by a reasonable margin propelled by its “RaniPill,” which delivers biologics drugs through an oral solid dose capsule formulation instead of an IV injection. The RaniPill may potentially treat or prevent osteoporosis via a parathyroid hormone and may also address a broad range of conditions, including rheumatoid arthritis, psoriatic arthritis, growth hormone deficiency, Crohn’s disease, hemophilia, and diabetes. Phase I testing of the pill is slated for this year.

Time will tell if these biotech IPOs and the many others not covered add to their valuation or continue to sink. Where share prices fall (no pun intended) will depend on little more than the drugs themselves. If any of these therapies make it past preclinical and through all clinical phases successfully to finally reach the market and make a positive impact, stocks will rebound. Regardless of how low shares currently are, if patients’ lives are saved, the biotech will succeed — and most likely be bought out. In 2022’s comparatively steady environment, investors must decide if it’s worth the risk to get in early or play it safe and wait for results, but potentially miss a steal.