Biotech's breathless quarter of IPOs brings in $2.1B for R&D

Back in January, at the annual J.P. Morgan Healthcare Conference, across hotel lobbies and crowded hallways and standing-room-only cafes, one could hardly escape talk about the biotech IPO boom. More than 45 life sciences companies had made their way onto the public markets in the preceding year, banking more than $3 billion in the process, and many at the industry's annual sewing circle believed biotech was about to see its shadow on Wall Street. Furthermore, rumor had it at least 25 upstarts were already embarking on road shows and wooing underwriters, all looking to squeeze out of a shrinking window before it snapped shut and burst the biotech bubble in the process.

But then that's not quite how things turned out.

Instead, a galling 29 life sciences outfits went public in the first quarter, taking home $2.1 billion to fund high-tech gene silencing, me-too pain drugs and what might boil down to a gussied-up formulation of plain old bleach, to name just three.

Not every member of the class of 2014 made a stellar debut, of course, and alongside high-fliers like Ultragenyx ($RARE) and Auspex came shakier offerings from Nephrogenex ($NRX) and Dipexium Pharmaceuticals ($DPRX). (The letter X was a running motif.) But, in sum, the whole group finished the quarter up about 36%, weathering a March downturn spurred by drug pricing concerns for big-timers like Gilead Sciences ($GILD) that trickled down to weaken the industry index.

Still, despite all the fresh cash and cautious optimism, the first quarter's boom didn't really assuage fears that biotech is in the midst of a bubble ready to burst; it simply deferred them.

No one expects Q1's pace to continue for the full year, and the aligning stars that helped so many biotechs win the favor of investors could turn around and make the industry a victim of its own success. Well-performing stocks and bullish public markets have helped pushed valuations ever higher for drug developers, creating something of a vicious cycle that could disincentivize the Big Pharma buyouts investors crave when they invest in biotechs to begin with. Thus, in a worst-case scenario, the IPO boom could desiccate the M&A market, thus undercutting Wall Street's interest and bursting the bubble.

But that's a problem for another day. For now, 29 biotech upstarts are hitting the gas on projects to, for example, fight cancer, treat inflammation, combat rare diseases and restore vision. The patient angle is often lost in discussions of dollars and deals, and while the well-cited 90% attrition rate for drug development will certainly apply to the latest crop of IPO success stories, $2.1 billion can pay for a lot of tries.

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