The future of stock-driven expansion capital for biotech stands at an uncertain precipice.  The biotech industry has struggled to gain investor support since the recession in 2008. This, however, may finally come to an end with the start of the New Year, as demonstrated with Stemline Therapeutics. The brand built on the development of two cancer-fighting agents was the first biotech company to successfully go public in 2013. Its shares, which debuted at $11, experienced an exciting 18% hike in price by the end of opening day. Stemline raised $33 million for its Phase II products. This may be a harbinger of good things to come for biotech companies looking to go public in 2013.

The moment biotechs entered the investors? sphere in 2000, they were a hit: there were 63 biotech IPOs that year. This momentum continued until the economic recession of 2008, which left investors uninterested in biotechs as they appeared to be too risky of a bet and investors simply did not have the money to spare. Nineteen biotech companies that had filed for an IPO withdrew their applications. The biotech companies that did go public had deeply slashed stock prices and underwhelming funds raised. Overall, it was a pretty bleak time to seek public funding for biotech companies.

Since 2008, the number of biotech IPOs has slowly grown, but pale in comparison to IPOs in other industries, particularly technology which has seen a boom since 2006. Things began to look up, however, in October of 2012 when biotech start-ups Intercept and Kythera went public with share prices at the top of their expected ranges ($19.40 and $18.49, respectively). With these share prices the companies were able to raise $75 million and $70 million, respectively, two enormous feats given the disappointing funds raised in the previous four years. With the success of Stemline this month, things are continuing to look up for Biotech hopefuls.

What does this mean for the industry in 2013? Clearly, the market is rebounding from its devastating 2008 status and investors are more willing to place risky bets.  Some project that this change of heart is a result of a dwindling biopharma industry, as many of the great Y2K blockbuster drugs are falling off patent. While pharmaceutical companies are scrambling to stay afloat, the next Lipitor or Humira is far from ready. In my humble opinion, this is a wise move on the part of investors. They are no longer depending on biopharma to turn a profit and they are getting wiser about their investments. In the early 2000s, investors would throw money at a start-up that had nothing more than animal study data, but now they are being more prudent with their money and waiting until products are in late Phase II or Phase III development. This is a tough industry to be in, but smarter investing and demonstrated clinical efficacy will help investors to better predict their returns on investment and offer the necessary financial aid to the biotech hopefuls with clinically proven products. Overall, this is a good sign for the future of the biotech industry.

Elizabeth Leitner is an Associate with the DRG Consulting group.

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