With climbing biotech M&A and IPO activity following the post-pandemic slump, experts offer insights on maximizing value and otherwise capitalizing on exit opportunities.
As investor confidence returns after a volatile period in biotech, companies seeking to successfully navigate acquisitions or IPOs face an evolving landscape with renewed optimism but lingering uncertainties around the new normal.
Experts who spoke with BioSpace offered insights into shifting investor priorities as well as practical tips for executing a successful exit in the current climate.
What Investors Are Looking For
Investors are prioritizing quality over quantity in clinical data and seeking companies whose leadership teams have proven track records, which are crucial for future exits that deliver returns.
These shifting investor priorities emerged as biotech companies navigated the challenging environment that followed the acute phase of the COVID-19 pandemic. Cody Powers, principal at ZS Associates, noted that many companies have been patiently waiting for the right moment to make their move. “The companies that survived the tough past few years were biding their time waiting for the IPO window to open” and are ready to seize IPO opportunities, with capital, investor enthusiasm and bank readiness all aligned, Powers told BioSpace. “We’re not in a bubble [anymore]; it’s the opposite—a lot of companies are lined up . . . ready to declare for IPOs, and this is exactly what happened.”
Kyverna Therapeutics closed 2024’s second-largest biotech IPO in February. Preparations began in September 2023 once the clinical-stage company collected post-treatment data on KYV-101, its CD19-targeted CAR T cell therapy for autoimmune diseases such as lupus nephritis and myasthenia gravia, as this was a key part of its exit strategy, former CEO Peter Maag told BioSpace. In September 2023, post-treatment data for lupus nephritis revealed no cases of immune effector cell–associated neurotoxicity syndrome—a known risk associated with CAR T cell therapy—in patients taking KYV-101. In November of that year, Kyverna reported collecting real-world patient data in the clinic, which ultimately contributed to the FDA’s clearance for a Phase II trial, Maag said.
“It was important to our IPO to be able to generate real-world patient data,” he told BioSpace. “Our goal was to provide initial evidence of comparable effect in autoimmune patients, but with a more acceptable risk profile.”
The Gilead-backed cell therapy startup Kyverna ultimately raised nearly $367 million in its upsized IPO. In September, Kyverna announced Maag’s resignation from his role and the board. He was succeeded by Warner Biddle, who most recently held senior commercial roles at Gilead’s Kite Pharma after a prominent career at Genentech. Christi Shaw, Kite Pharma’s former CEO, also joined the board as part of the transition to the new development phase of the KYV-101 program.
Ira Leiderman, healthcare managing director at investment banking firm Cassel Salpeter, said leadership with prior wins is seen as an indicator of a company’s ability to achieve similar market success, and added that the data must not only be good, but the potential markets big. Biotech investors are increasingly seeking “rock-star management teams and a clear path toward blockbuster therapies, not just niche products.”
Andrew Lam, managing director and head of biotech private equity at Ally Bridge Group, pointed to CG Oncology, the first biotech to go public in 2024, which raised an upsized IPO of $380 million in January. “[CG’s] strong management, excellent clinical data and significant investor backing made their IPO the largest of 2024,” Lam told BioSpace. Ally Bridge had supported CG since its series A financing round, when it invested $13.6 million and then became a significant shareholder after the biotech went public.
“[CG] is the most successful IPO of the current class of 2024,” Lam said. That’s because the company had a strong investor syndicate in its crossover round and differentiated data.
Jakob Dupont, executive partner at Sofinnova Investments, told BioSpace that leadership teams with expertise in finance and clinical development are of particular value. He highlighted the recent successes of the biotech firms that Sofinnova has supported, including startup RayzeBio.
Established in 2020, radiopharma-focused, clinical-stage RayzeBio was considered to have a rockstar leadership team with experience across the biotech, finance and pharmaceutical sectors. Key figures included former President and CEO Ken Song—who previously led Ariosa Diagnostics, acquired by Roche in 2016, and now leads Candid Therapeutics, which made its debut in September to position itself as a T cell engager market leader—and former CMO Susan Moran, who previously held leadership positions at Sanofi, Takeda, Puma Biotechnology and BridgeBio. Following closing its upsized $311 million IPO in September 2023, RayzeBio was acquired in February by Bristol Myers Squibb for $4.1 billion. The crown jewel of the acquisition was RayzeBio’s actinium-based targeted radiopharmaceutical candidate, RYZ101, which is in Phase III development for treating gastroenteropancreatic neuroendocrine tumors.
Powers noted current investor focus on leadership is part of a larger shift from investing based solely on confidence in the science to a longer-term view, recognizing that solid science does not always guarantee market success. Early-stage investors, influenced by the formerly stagnant M&A environment, now understand that science alone is not enough—they must also account for factors like pricing and manufacturing challenges that could limit a therapy’s potential, according to Powers. “These considerations beyond just the strength of the science are now front and center,” he said. The investor landscape “is more nuanced, with a broader set of factors to consider than before.”
Practical Tips for Executing a Biotech Exit
Experts recommend adopting a multi-pronged approach to exit strategies to enhance their chances of success, particularly by optimizing outcomes during the exit process, made easier by leveraging successful investor funding strategies. These include exploring diverse options, being open to down rounds, considering selling royalties and building strong investor syndicates.
Don’t put all your eggs in one basket.
Biotech companies should explore various exit strategies simultaneously, experts recommended, noting that this approach has become a new trend in the industry. Companies are increasingly recognizing that pursuing multiple exit options at the same time can attract more interest from potential buyers and investors, ultimately enhancing their chances of a successful exit.
“Biotech stories are rarely linear and there are more often than not large bumps in the road,” Kale Frank, managing director of Silicon Valley Bank’s life science and healthcare division, told BioSpace. “The more resources you have at your disposal and the more options you can have on the table, the more you will be able to smooth out some of those bumps.”
Powers noted that most high-profile M&A exits involve public companies that went through IPOs to better position themselves for acquisition by larger firms. For private companies, the decision between an IPO and M&A often depends on whether they have long-term growth potential, he added. But he noted that with renewed investor optimism, companies are more willing to put off a potential exit, sometimes accepting smaller funding rounds while keeping hopes for an IPO or preserving long-term value.
Frank added that “the savviest management teams are for sure looking at all options, but also thinking about ways to increase their probability of success. They have more levers to pull, both if things go well and if things don’t go according to plan A.”
Be open to a down round.
Frank argued that private companies may sometimes need to resort to down rounds—when capital is raised at a valuation lower than the previous financing round—to secure funding and move forward. Down rounds, while not ideal, can keep companies operational, allowing them to hit key milestones and improve outcomes in better market conditions.
Consider selling royalties.
Royalty financing has become an increasingly popular alternative to equity-dilutive funding options like venture capital and IPOs, as it allows companies to raise capital based on future revenue-sharing agreements, Brad Sitko, chief investment officer at XOMA Royalty, previously told BioSpace. Striking royalty deals can also help ensure financial readiness by providing immediate capital, reducing financial risk and strengthening the company’s positioning during exit negotiations, he said.
Sitko argued that opportunities in royalty monetization enable companies to access capital by selling future royalty streams despite emerging challenges in securing adequate financing, such as greater investor selectiveness. “This financing tool, combined with exit trends, suggests a potential reversal of [rising] biotech bankruptcies,” Stiko said.
Build a strong investor syndicate.
Just like CG, companies should diversify their investor base by building a strong syndicate of crossover investors who can provide financial support before and after an IPO, DuPont said. Having crossover investors with the resources to reinvest after the IPO ensures stability and fosters continued growth.
Maag added that Kyverna drew in the appropriate investors after its successful extension of a series B financing in August 2023, establishing a solid groundwork for its expansion. The company’s focus then shifted to strategically outlining long-term financing, Maag further noted.
“This marks my second IPO in my professional career, and every time it is a very different ball game,” Maag said. His first IPO was with Miromatrix Medical, which raised $49.7 million in June 2021; this set the stage for the company’s two-step acquisition by United Therapeutics in December 2023, highlighting a common M&A strategy for full integration within about 2.5 years.
Focus on the short term.
Maag also emphasized the importance of prioritizing near-term inflection points in biotech exit strategies. Achieving such upcoming milestones or events, which typically include key clinical trial results, regulatory approvals or significant partnership announcements, can drastically increase a company’s value and make it a more appealing target for acquisition or investment.
As such, Maag said companies often plan their exit strategies around these milestones to maximize their valuation and attract interest from potential buyers or investors. “Focus on developing a set of initiatives that keep adding immediate value to your business proposition and let clinical data showcase your value creation potential to investors,” Maag added.
