What goes up must come down. Fortunately in finance, what's down unusually comes back up eventually.
Let's start with the good news.
Investments in privately held companies based in the U.S. rose substantially in the second quarter to $1.36 billion, up from $814 million in the first quarter. The total raised in the first half of the year was more than twice what we saw in the same period last year. (See charts on First Half 2013 and First Half 2014, below.)
I've been lamenting quarterly in this column about the lack of series B investments, which wasn't too surprising given the doldrums of years past when company formation was scaled back.
Start-ups eventually came back in vogue, and it appears they're ready for another round of financing to get them through the marathon of drug development. In the first half of the year, 31 companies had second-round financings, compared to just 11 in the prior year.
More importantly, the companies are raising a decent amount of money during their series B financings; the median deal in the first half of the year was $21 million, up from just $8 million a year ago.
Later-stage companies also are attracting plenty of money, raising $1.16 billion in the first half of this year on 33 deals according to BioWorld Snapshots.
Interestingly, the number of early round deals were virtually identical between the two years. The only exception – one that this former scientist appreciates – was the number of start-up specialty pharmas, defined as companies in-licensing drugs or using a platform to reformulate drugs, made up just 9 percent of the companies receiving series A investments, down from nearly a third of start-ups a year ago.
Now for the bad news.
The initial public offering (IPO) market isn't what it used to be. And by used to be, I mean the previous quarter.
Only 12 companies went public on U.S. exchanges in the second quarter, down from 26 in the first quarter. Of course it's all relative.
There were only 18 IPOs in the first half of last year. In fact, as many companies went public in the first half of this year as the total for all of last year.
On the surface a slower pace of IPOs in the second quarter isn't unexpected. Surely some of the first quarter IPOs were companies that delayed their offerings from late last year. Who wants to go on a road show in December?
If you want to be optimistic, the 12 IPOs we saw in the second quarter is still more than the eight IPOs that priced in the fourth quarter of last year.
Of course, there were 17 deals in each quarter if you average the fourth quarter and the first quarter, so it appears the pace has slowed a bit.
The $69 million – the average IPO raise this year – question is whether the slowdown is because investors have become uninterested in financing public questions or because the quality of the companies has declined below their threshold.
As of June 30, there were 29 companies that have filed to go public on U.S. exchanges that would really like to know the answer to that question.
We'll know in three months whether were up or down. See you then.